UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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| Preliminary Proxy Statement | |
| Confidential, for Use of the Commission Only (as permitted by Rule | |
| Definitive Proxy Statement | |
| Definitive Additional Materials | |
| Soliciting Material under | |
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First Midwest Bancorp, Inc. | ||
(Name of Registrant as Specified In Its Charter) | ||
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) | ||
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| (4) | Date Filed: |
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Certain Terms
Certain terms that we use in the accompanying Proxy Statement have particular meanings, as set forth below.
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Term | | Meaning |
401(k) Plan | | First Midwest Bancorp, Inc. Savings and Profit Sharing Plan, as amended |
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Annual Meeting | |
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Board of Directors or Board | | Board of Directors of First Midwest Bancorp, Inc. |
By-Laws | | Amended and Restated By-Laws of First Midwest Bancorp, Inc. |
Certificate of Incorporation | | Restated Certificate of Incorporation of First Midwest Bancorp, Inc., as amended |
| | Common Stock, $0.01 par value per share, of First Midwest Bancorp, Inc. |
Company, First Midwest, we, us or our | | First Midwest Bancorp, Inc. |
CRATCE | | Core Return on Average Tangible Common Equity, which excludes certain items, such as securities gains and losses, acquisition and integration expenses and balance sheet and retail optimization costs |
Deferred Compensation Plan | | First Midwest Bancorp, Inc. Nonqualified Retirement Plan, as amended |
Exchange Act | | Securities Exchange Act of 1934, as amended |
FASB ASC 718 | | Financial Accounting Standards Board Accounting Standards Codification Topic 718 |
First Midwest Bank or Bank | | First Midwest Bank, which is a wholly-owned subsidiary of First Midwest Bancorp, Inc. |
Form 10-K | | First Midwest Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, |
Gain Deferral Plan | | First Midwest Bancorp, Inc. Stock Option Gain Deferral Plan, as amended |
Internal Revenue Code | | Internal Revenue Code of 1986, as amended |
^KRX Index | | KBW Nasdaq Regional Banking Index (First Midwest Bancorp, Inc. is included in this index) |
M&A | | Mergers and acquisitions |
Named executive officers or NEOs | | Executive officers named in the Summary Compensation Table contained in this Proxy Statement |
Non-Employee Directors Stock Plan | | First Midwest Bancorp, Inc. Amended and Restated Non-Employee Directors Stock Plan, as amended |
Notice | | The Notice of Annual Meeting of Stockholders that accompanies this Proxy Statement |
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Pension Plan | | First Midwest Bancorp, Inc. Consolidated Pension Plan, as amended |
preferred stock | | Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A and Series C, of First Midwest Bancorp, Inc. |
Proxy Card | | The form of proxy card or voting instruction form that accompanies this proxy statement |
Proxy Statement | | This proxy statement |
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Record Date | | March |
SEC | | United States Securities and Exchange Commission |
Stock and Incentive Plan | | First Midwest Bancorp, Inc. 2018 Stock and Incentive Plan |
TSR | | Total Stockholder Return |
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Welcome to the First Midwest Bancorp, Inc. |
Annual Meeting ofStockholders |
April 17, 202013, 2021
Dear Fellow Stockholders:
You are cordially invited to attend the 20202021 Annual Meeting of Stockholders of First Midwest Bancorp, Inc., which will be held on Wednesday, May 20, 202019, 2021 at 9:00 a.m., Central time, at the Westin O’Hare Hotel, 6100 North River Road, Rosemont, Illinois 60018.
in a virtual meeting format only. As part of our continued precautions regarding coronavirus (COVID-19)the COVID-19 pandemic and in light of the priority we place on the health, safety and well-being of our stockholders and colleagues, we are planning for the possibility that the Annual Meeting maywill be held solely by means of remote communication. If we take this step, weStockholders will announcebe able to listen, vote and submit questions from any remote location with Internet connectivity. Online check-in will begin, and stockholders may begin submitting written questions, at 8:45 a.m. Central time, and you should allow ample time for the decision to do so in advance and detailscheck-in procedures. For additional information on how to participate will be publicly announced in a press release, available on our website atattend the Annual Meeting, please see www.firstmidwest.com/pressreleases, and filed with the Securities and Exchange Commission as proxy material.If we hold a virtual meeting, you will need the control number included on your Proxy Card in order to participate. Other Matters – Voting Your Shares.
The matters to be acted on at the Annual Meeting are described in the accompanying Notice of Annual Meeting of Stockholders and Proxy Statement. Also enclosed is a copy of our 20192020 Annual Report. Please review these materials carefully before voting.
We are pleased to offer multiple options for voting your shares. As detailed in the Proxy Summary section of the attached Proxy Statement, you may vote your shares via the Internet, by telephone or by mail. Voting in any of these ways will not prevent you from attending the virtual Annual Meeting. You may also may vote in person atduring the virtual Annual Meeting.
Your vote is very important to us. Whether or not you plan to attend the meeting in person,virtual Annual Meeting, your shares should be represented and voted.
On behalf of our Board of Directors, I would like to express our appreciation for your continued interest in First Midwest. I hope you will be able to attend the virtual Annual Meeting.
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Sincerely, | |
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Michael L. Scudder | |
Chairman and Chief Executive Officer | |
First Midwest Bancorp, Inc.
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Notice of Annual Meeting of Stockholders |
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Wednesday, May | First Midwest Bancorp, Inc. 8750 West Bryn Mawr Avenue Suite 1300 Chicago, Illinois 60631 |
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Virtual Meeting | |
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As part of our continued precautions regarding | |
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Items of Business: | |
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◆ To elect as directors the | |
◆ To approve the Amendment and Restatement of the First Midwest Bancorp, Inc. 2018 Stock and Incentive Plan. | |
◆ To approve an advisory (non-binding) resolution regarding the compensation paid in | |
◆ To ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the year ending December 31, | |
◆ To transact such other business as may properly come before the Annual Meeting. | |
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Record Date: March | |
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You are entitled to vote at the Annual Meeting only if you owned shares of First Midwest Bancorp, Inc. common stock at the close of business on the | |
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Proxy Voting: | |
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It is important that your shares be represented and voted at the Annual Meeting. You can vote your shares via the Internet, by telephone or by mail. Voting in any of these ways will not prevent you from attending | |
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Visit the website noted on your Proxy Card to vote online. | | Use the toll-free telephone number noted on your Proxy Card to vote by telephone. | | Sign, date and return your Proxy Card in the postage pre-paid envelope provided to vote by mail. | | Cast your vote | |
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By Order of the Board of Directors, | | ||||||
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Nicholas J. Chulos | | ||||||
Executive Vice President, General Counsel | April | ||||||
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INFORMATION REGARDING BENEFICIAL OWNERSHIP OF PRINCIPAL STOCKHOLDERS, DIRECTORS AND MANAGEMENT | 44 | ||
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TABLE OF CONTENTS, CONT.
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PROXY STATEMENT
We are furnishing this Proxy Statement in connection with a solicitation of proxies by the Board of Directors of First Midwest Bancorp, Inc., a Delaware corporation, for use at our 20202021 Annual Meeting of Stockholders. The approximate date on which this Proxy Statement, the accompanying Proxy Card and our 20192020 Annual Report are first being sent or otherwise made available to stockholders is April 17, 2020.13, 2021. The following is a summary of the items to be voted upon at the Annual Meeting.
Date, Time and Place of the Annual Meeting
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*As part of our precautions regarding coronavirus (COVID-19) and in light of the priority we place on the health, safety and well-being of our stockholders and colleagues, we are planning for the possibility that the Annual Meeting may be held solely by means of remote communication. If we take this step, we will announce the decision to do so in advance and details on how to participate will be publicly announced in a press release, available on our website at www.firstmidwest.com/pressreleases, and filed with the SEC as proxy material. If we hold a virtual meeting, you will need the control number included on your Proxy Card in order to participate.
Matters to be Considered at the Annual Meeting
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Items of Business |
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Election of Directors | | FOR | ||
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Approval of the Amendment and Restatement of the First Midwest Bancorp, Inc. 2018 Stock and Incentive Plan | | FOR | ||
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Approval of an Advisory (Non-Binding) Resolution Regarding the Compensation Paid in | | FOR | ||
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Ratification of the Appointment of the Company’s Independent Registered Public Accounting Firm | | FOR | ||
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Proxy Summary
Election of Directors
The first item of business at the Annual Meeting will be the election of twelveeleven directors of the Company. The nominees are set forth in the table below. Each nominee is currently a director of the Company. Our Board recommends that you vote FOR the election of each of the nominees below. See Item 1 Election of DirectorsDirectors..
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Barbara A. Boigegrain | | Kathryn J. Hayley | | Ellen A. Rudnick | | Michael J. Small |
CEO and General Secretary of Wespath Benefits and Investments | | CEO of Rosewood Advisory Services, LLC Former Executive Vice President of UnitedHealthcare | | Lead Independent Director Senior Advisor and Adjunct Professor of Entrepreneurship at University of Chicago Booth School of Business | | Founder and CEO of K4 Mobility LLC Former President and CEO of Gogo, Inc. |
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Thomas L. Brown | | Peter J. Henseler | | Mark G. Sander | | Stephen C. Van Arsdell |
Former Senior Vice President and CFO of RLI Corp | | President of TOMY International | | President and COO of the Company | | Former Senior Partner, Chairman and CEO of Deloitte & Touche LLP |
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Phupinder S. Gill | | Frank B. Modruson | | Michael L. Scudder | |
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Former CEO of CME Group, Inc. | | President of Modruson & Associates, LLC Former Partner and CIO of Accenture plc | | Chairman and CEO of the Company | |
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Amendment and Restatement of the First Midwest Bancorp, Inc. 2018 Stock and Incentive Plan
We are asking our stockholders to approve the Amendment and Restatement of the First Midwest Bancorp, Inc. 2018 Stock and Incentive Plan, including the issuance of additional shares of common stock authorized thereunder. See Item 2 Approval of the Amendment and Restatement of the First Midwest Bancorp, Inc. 2018 Stock and Incentive Plan.
Advisory Vote on Executive Compensation
We are asking our stockholders to approve, on an advisory (non-binding) basis, a resolution regarding the compensation paid in 20192020 to our named executive officers as disclosed in this Proxy Statement. See Item 23 Approval of an Advisory (Non-Binding) Resolution Regarding the Compensation Paid in 20192020 to the Company’s Named Executive Officers.
Ratification of Independent Registered Public Accounting Firm
We are asking our stockholders to ratify, on an advisory (non-binding) basis, the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2020.2021. See Item 34 Ratification of the Appointment of the Company’s Independent Registered Public Accounting FirmFirm..
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2 | First Midwest Bancorp, Inc. |
Proxy Summary
How to Vote
Even if you plan to attend our virtual Annual Meeting, in person, please cast your vote as soon as possible.
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The web address for Internet voting can be found on your Proxy Card. Internet voting is available 24 hours a day. To be valid, your vote by Internet must be received by the deadline specified on the Proxy Card. | | The number for telephone voting can be found on your Proxy Card. Telephone voting is available 24 hours a day. To be valid, your vote by telephone must be received by the deadline specified on the Proxy Card. | | Request a paper copy of the Proxy Card if you have not received one, and mark your Proxy Card, sign and date it, and return it in the postage pre-paid envelope provided. To be valid, your vote by mail must be received by the deadline specified on the Proxy Card. |
If you choose not to vote early, you can vote your shares in person atduring the Annual Meeting. You must present an acceptable formStockholders of identification (suchrecord as a valid driver’s license) to enterof the close of business on March 26, 2021, the Record Date for the Annual Meeting, may attend the meeting at www.virtualshareholdermeeting.com/FMBI2021by logging in and vote in person.
If you holdentering the control number found on the Proxy Card. Once admitted to the Annual Meeting, stockholders should follow the instructions on the website. You will need the control number included on your shares in street name, you may vote by following your broker’s instructions or,Proxy Card in order to vote in person at the Annual Meeting, you must obtain from the broker through which you hold your shares, both an account statement showing that you owned shares of Common Stock as of the Record Date and a “legal proxy” form, and bring them to the meeting.
If you attend the Annual Meeting as a representative of a stockholder that is an entity, then you must bring proof of your authorization to attend and act on behalf of that entity.participate.
Important Notice Regarding the Availability of Proxy Materials
A copy of our Annual Report for the year ended December 31, 20192020 accompanies this Proxy Statement. The Notice, this Proxy Statement and our Annual Report are available at www.firstmidwest.com/investorrelationshttps://investor.firstmidwest.com/sec-filings/documents/. If you would like to receive, without charge, an additional paper copy of our Annual Report, please contact our Corporate Secretary at First Midwest Bancorp, Inc., 8750 West Bryn Mawr Avenue, Suite 1300, Chicago, Illinois 60631.
Certain Financial Information Presented on an Adjusted Basis
This Proxy Statement contains references to certain financial information on ana core or adjusted basis. This information as adjusted, excludes certain items, such as acquisition and integration related expenses, securities gains and losses, and balance sheet and retail optimization costs. We believe that presenting certain financial information in this manner assists stockholders in understanding our core financial performance and in assessing the Company’s underlying operational performance since these items do not pertain to our core business operations. Exclusion of these items facilitates better comparability between periods and enhances comparability for peer comparison purposes. For a reconciliation of the GAAP and non-GAAP financial measures discussed in thisProxy Statement, which include core net income earnings, earnings per share, return on assets and core return on average tangible common equity, in each case as adjusted to exclude certain items, to the nearest comparable GAAP financial measures, see our Form 10‑K10-K filed with the SEC on February 28, 2020.March 1, 2021.
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First Midwest Today
First Midwest Bancorp, Inc. is a relationship-focused financial institution and one of the largest independent publicly traded bank holding companies based on assets headquartered in Chicago and the Midwest, with approximately $19$21 billion of assets (including our acquisition of Park Bank in Milwaukee that we completed on March 9, 2020) and an additional $12$14 billion of assets under management. The Company’s principal subsidiary, First Midwest Bank, and other affiliates provide a full range of commercial, treasury management, equipment leasing, consumer, wealth management, trust and private banking products and services. The primary footprint for our branch network and other locations is in metropolitan Chicago, southeast Wisconsin, northwest Indiana, central and western Illinois, and eastern Iowa.
GrowthOur Response to the COVID-19 Pandemic and Maintaining Our Strength and Stability in 20192020
BuildingDespite the challenging environment created by the COVID-19 pandemic, we remained focused throughout 2020 on executing on our momentum, 2019 was an exceptionally strong and productive year for our Company during which we continued to execute on our strategicbusiness priorities of buildingcontinuing to build an empowered, engaged and maintaining the highest quality and engageddiverse team, growing and diversifying our revenues through organic growth and disciplined acquisitions, and managing business risk. This strategy resultedinvesting in added scale and talent to provide us with the resources andour future. We executed on our continued strategic flexibility to continue to grow profitably.
In 2019, we generated total revenues of $862 million and net income, adjusted, of $217 million, both of which were at record levels for our Company. We finished 2019 with assets of approximately $18 billion. Underlying these strong financial results, in addition to growth, were controlled expenses. Our acquisition activity also contributed to our strong 2019 performance. During the first quarter of 2019, we completed our acquisition of Northern Oak Wealth Management, adding over $800 million of assets under management. In the second quarter of 2019, we completedexpansion into Milwaukee by successfully completing our acquisition and integration of BridgeviewPark Bank in 2020, which contributedadded an additional $1.2 billion of assets, $1.0 billion of deposits and $711approximately $688 million of loans. We also announcedincreased our acquisitiontotal assets in 2020 to nearly $21 billion (an increase of Park Bank17% over 2019), up from $18 billion in 2019, and completed this transaction in early March 2020. Park Bank adds an additional $1.1grew our total deposits to $16 billion (an increase of assets, $1.021% over 2019) and our total loans, excluding Paycheck Protection Program loans, to $14 billion (an increase of 9% over 2019), up from $13 billion for each of deposits and $720loans in 2019.
We maintained our top 10 deposit share in the greater metropolitan Chicago market (top 2 in south metro and top 3 in northwest Indiana) and gained a top 10 deposit market share in Milwaukee through our Park Bank acquisition. We increased our ratio of core deposits to total deposits to 87% in 2020, up from 77% in 2019, thereby maintaining our low-cost core deposit advantage. This diverse mix of deposits includes the benefits of PPP loan funds, as well other government stimulus programs and deposits assumed in our Park Bank acquisition.
In addition, despite the severe economic conditions in 2020, we had a record year of mortgage banking and wealth management income, proactively raised $230 million of loans.additional capital and maintained a stable credit portfolio. Moreover, the challenges of 2020 did not deter us from continuing to take steps to advance our technology plan, increasing our technology spend by more than one-third from 2019, and enhancing our digital capabilities. The pandemic accelerated our already growing trend of increased online, mobile and digital offerings.
We achieved numerous successes in 2020 that fell outside of the ordinary course of business, as we shifted our energy and focus to the health, safety and well-being of our clients, colleagues and communities as they faced their own challenges brought on by the COVID-19 pandemic. We pivoted and adapted our platforms as well as our
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4 | First Midwest Bancorp, Inc. |
About First Midwest
distribution and operating models to respond to the needs of our colleagues and clients, and assisted with the stress on individual, business and local needs.
For our clients, we continued to keep much of our branch network open and operating during the height of the pandemic (with appropriate health and safety protocols) so that clients encountered no interruption in accessing financial services. We offered aid and support to help ease the financial burden for business and individual clients through payment deferral and fee assistance programs. In a matter of a few weeks, we also supported our clients and the economy generally by participating in the federally-sponsored Paycheck Protection Program. To do this, we quickly enhanced our infrastructure and mobilized a team of colleagues to accept, process and fund these loans.
For our colleagues, we established heightened health and safety protocols for those who were required to work at one of our branches or other locations in order to continue to serve our clients, implemented a remote working plan for over 1,000 colleagues, expanded our health benefits and support programs, provided special bonuses and pay premiums to essential front-line employees, made interest-free hardship and emergency relief loans to over 500 colleagues and enhanced benefits and paid time-off programs.
We strengthened our dedication to our communities as the First Midwest Charitable Foundation committed $2.5 million to support local organizations and COVID-19 relief efforts. We also took several steps to encourage philanthropic giving across First Midwest, including enhancing our matching gift program and encouraging contributions to nonprofit organizations that support civil rights, anti-racism and social justice causes.
Throughout 2020, we also furthered our long-standing commitment to diversity, equity and inclusion by continuing to build on our learning curriculum relating to inclusive leadership and cultural competency skills as well as offering opportunities for our colleagues to engage in open and honest conversations about race and equality to minimize unconscious bias. This commitment is embraced by all of our colleagues and is facilitated by our Head of Corporate Social Responsibility and Diversity, Equity and Inclusion and her team.
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2021 Proxy Statement | 5 |
Performance Highlights of 2019About First Midwest
Organizationally, we achieved a number of successesOur organizational accomplishments in 2019, which2020 are summarizedmore fully described below. As noted above under Proxy Summary—Certain Financial Information Presented on an Adjusted Basis, we discuss our performance in this proxy statement both on a reported GAAP basis and on an adjusted basis. The adjusted information primarily excludes acquisition and integration expenses, securities gains and losses, and balance sheet and retail optimization costs, which allows us to properly assess our performance on a core basis and relative to peers.
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Generated reported earnings per share of $1.82, an increase of 20% from 2018 and 90% from 2017. Earnings per share, adjusted, were $1.98, up from $1.67 for 2018. |
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| Increased net interest income to $588 million, up 14% from 2018. |
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| Improved our efficiency ratio by nearly 300 bps to 55% from 58% for 2018. |
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$18 billion |
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Increased total assets to $18 billion at December 31, 2019, up 15% from the end of 2018 and 27% from 2017. Following the completion of our acquisition of Park Bank in the first quarter of 2020, our total assets are now approximately $19 billion. |
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| Grew average total deposits to $13 billion for the year ended December 31, 2019, an increase of 13% from 2018. Average core deposits continued to be strong at 77% for the year ended December 31, 2019. We now hold a top 10 deposit share in the Chicago MSA. |
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| Grew total loans to nearly $13 billion at December 31, 2019, an increase of 12% from December 31, 2018. Maintained solid credit quality with net charge-offs to total loans of 31 bps, compared to 38 bps in 2018. |
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1.28% |
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Achieved a return on average assets, adjusted, of 1.28%, up 9.5% and 31% from 2018 and 2017, respectively. |
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| Maintained strong regulatory capital ratios. Common equity tier 1 capital to risk-weighted assets grew to 10.5% at December 31, 2019, an increase of over 30 bps from the end of 2018. Total capital to risk-weighted assets grew to 13.0% at December 31, 2019 from 12.6% in 2018. |
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| Paid our 148th consecutive quarterly cash dividend in 2019. With continued confidence in our Company and business strategy and our desire to return value to our stockholders, our Board increased cash dividends to $0.54 per share in 2019, a 20% increase from 2018. |
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One-third of our directors are diverse on the basis of gender or race. We were recognized by 2020 Women on Boards for having at least 20% gender diversity on our Board of Directors. Three of our directors also were named to WomenInc.’s 2019 most influential female directors list. |
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| As we continued to grow in 2019, we did so with respect for our environmental impact and an emphasis on social responsibility, strong corporate governance and uncompromised integrity. We enhanced our CSR resources in 2019 by creating the new position of Head of Corporate Social Responsibility and Diversity & Inclusion. |
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| Our CEO was elected to the board of directors of the American Bankers Association and currently serves as chair of the ABA’s CEO council. In addition, several of our senior officers received various industry and community recognitions. |
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$21 billion | | | ⇧ 21% | | | ⇧ 9% |
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Increased total assets to $21 billion at December 31, 2020, up 17% from the end of 2019 and 34% from the end of 2018. | | | Grew total deposits to $16 billionat December 31, 2020, an increase of 21% from 2019. | | | Grew total loans to nearly $14 billion, excluding PPP loans, at December 31, 2020, an increase of 9% from December 31, 2019. Including PPP loans, total loans grew to $15 billion. |
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Capital and | | | PPP Loan Assistance | | | Strategic Expansion |
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| | $1.2 billion | | | Park Bank | |
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Added 118 basis points of total capital by December 31, 2020, ending the year at 14.14% of risk-weighted assets, maintaining our financial strength and stability. Also doubled our allowance for loan losses as we implemented CECL in 2020 and prudently prepared for the possibility of increased credit losses given our limited visibility into the long-term effects of the pandemic at its outset. | | | Provided $1.2 billion of PPP loans, assisting over 6,700 clients and positively impacting nearly 150,000 small business employees and their families. | | | Closed our acquisition and completed the systems conversion of Park Bank in 2020, successfully expanding our footprint into the Milwaukee and southeast Wisconsin markets. |
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Board | | | CSR and DE&I | | | Industry Leadership and Recognition |
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Four of our continuing directors are diverse on the basis of gender or race, resulting in over 36% diversity on our Board. We were recognized by Women on Boards for having 25% female board membership. | | | In 2020, we continued our focus on corporate social responsibility, diversity, equity and inclusion, environmental impact and uncompromised integrity. We are planning to release our inaugural Corporate Social Responsibility and Diversity, Equity and Inclusion Reportin mid-2021, where we will discuss our progress in greater detail. | | | In 2020, we were again recognized as a Chicago Tribune Top Place to Work(we were the highest rated commercial bank in Chicago) and on the Forbes Best-in-State Bankslist. Two of our bankers were honored on Crain’s Chicago Notable Minorities List and one of our colleagues was named a “Corporate Woman of Achievement” by the National Association of Women Business Owners. |
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Colleague Support | | | Client and Community Support | | | Dividends |
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We enhanced our health and retirement benefits and provided greater flexibility and hardship time-off for our colleagues. We also expanded our interest-free emergency medical and hardship loansand enhanced our matching gift program. | | | We helped nearly 9,000 clientsthrough payment deferrals and other accommodations in response to the COVID-19 pandemic. We committed $2.5 millionfrom our First Midwest Charitable Foundation to support COVID-19 relief efforts. | | | We paid our 152ndconsecutive quarterly cash dividend on our common stock in 2020, resulting in cash dividends of $0.56per share in 2020, up from $0.54 total cash dividends in 2019. |
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6 | First Midwest Bancorp, Inc. |
About First Midwest
Our Vision, Mission and Values
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To be the partner of choice for financial services in the markets we serve, and one of the nation’s top performing financial institutions. | To help our clients achieve financial success. | To serve our clients with integrity, excellence, responsibility and passion. |
During 2019,2020, we remained focused on our vision, mission and values, which drive our culture that is centered on client needs, rooted in service excellence, dedicated to bettering our communities and focused on attracting top industry talenttalent. Our path to success is through our relationships with clients and influenced by technological change.our commitment to providing a superior client experience. These factors provide significant momentum for future earnings growth and enhance our position as a premier Midwest-based commercial bank committed to helping our clients achieve financial success. This commitment is at the core of all that we do.
StrategicBusiness Priorities
In building our platform for continued profitable growth, we focus on the following priorities in order to position the Company for future success.
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CORPORATE SOCIAL RESPONSIBILITY AND DIVERSITY, EQUITY AND INCLUSION – OUR COMMITMENT
Our commitment to corporate social responsibility has been part ofand diversity, equity and inclusion is ingrained in our corporate fabric since the founding offabric. Throughout our Company. When forminghistory, First Midwest Bank shortly after the Great Depression, our founders established a commitmenthas committed to treattreating all of our clients, regardless of stature or wealth, with respect and a focus on their financial needs. Since then,This commitment was inherited from our colleagues have maintained that commitment.predecessors, runs 150 years deep and is currently overseen by our Head of Corporate Social Responsibility and Diversity, Equity and Inclusion and her team, with the full support of our Board of Directors, our Chief Executive Officer, our executive leadership team and our colleagues.
Anchored in our vision, mission and values, we drive business performance and accelerate economic and social momentum by investing in our colleagues, clients and the communities we serve. With best in class corporate citizenship and an integration of diversityDiversity, equity and inclusion intoare at the foundationcore of our culture, we are better equippedwhich enables us to best meet the evolving needs of our colleagues, clients, communities, stockholders and other stakeholders. We are planning to release our inaugural Corporate Social Responsibility and Diversity, Equity and Inclusion Report in mid-2021. The framework for our approach to corporate social responsibility and diversity, equity and inclusion, which will be more fully discussed in our inaugural report, is outlined below.
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| Talent Acquisition & Mobility Recruit, retain and develop diverse talent at all levels of the enterprise to drive high performing, productive and innovative teams | |
| Workplace Culture Foster a diverse culture of inclusion, belonging and trust where everyone feels valued and encouraged to express authenticity and uniqueness in the workplace |
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| Community Investment & Visibility Accelerate inclusive economic momentum for individuals and businesses in the communities we serve through strategic philanthropy, partnerships, lending and investments | |
| Colleague Engagement Deepen colleague engagement and drive social impact through enterprise-wide volunteerism and giving platforms |
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| Sustainability/Environmental Excellence Advance economic impact through socially responsible policies and sustainable environmental practices | |
| Corporate Governance Bolster confidence of our stockholders, regulators and clients through prudent and transparent governance, risk, ethical and compliance practices |
We are proud of our commitment to corporate social responsibility. In 2019,responsibility and diversity, equity and inclusion. Even with the pandemic-related challenges experienced in 2020, we deepened our investment in sustainability by creating the new position of Head of Corporate Social Responsibility and Diversity & Inclusion. The purpose of this position ishave continued to enhancedevelop and execute an integrated corporate social responsibility and diversity, equity and inclusion strategy that is aligned with our growth agenda as well as our ability to create long-term stockholder value. Our framework for this strategyBoard of Directors plays an integral role in overseeing our progress. Below is outlined below.a brief description of some of our achievements in 2020.
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Talent Acquisition & Mobility |
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| ◆ We created a 5-year strategic partnership with DePaul University to build diverse talent in early career programs through outreach, scholarship support and internship placements. ◆ Anchored in Chicago, our client base reflects a broad spectrum of diversity. We believe that we can best serve our clients and communities when our colleague base displays the same diversity of those whom we serve, and we are committed to |
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| First Midwest Bancorp, Inc. |
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Corporate Social Responsibility
Workplace Culture |
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◆ In 2020, our
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Black and Latinx colleagues. |
Community Investment & Visibility | ◆ For almost 25 years, the Company has been rated Outstanding by the Federal Reserve under the Community Reinvestment Act, while growing in asset size and expanding our geographic footprint. ◆ We maintain branch locations that we believe are conducive and responsive to the needs of the communities we serve, including low- and moderate-income areas in our geographic footprint. ◆ In 2020, we extended approximately $264 million of community development loans, including loans related to our participation in the Paycheck Protection Program. ◆ We continued our long history of supporting our communities with a $2.5 million philanthropic commitment – our largest commitment to date – from our First Midwest Charitable Foundation to support organizations providing COVID-19 relief efforts and financial stability to individuals and families. ◆ We collaborated with various community groups to provide more than 80 financial education events – the majority of which were held virtually in 2020 due to the pandemic – that focused on saving, budgeting, homeownership and other topics that enhance the financial literacy of low- and moderate-income community members. We offer flexible banking products designed to build financial capabilities, including credit-building consumer products, down payment and closing cost assistance programs, affordable check cashing services, and no-fee checking accounts. |
Colleague | ◆ In 2020, we were again recognized as one of the Chicago Tribune Top Places to Work and we were the highest ranked commercial bank among large companies. We were also named one of Forbes’ Best-in-State Banks. ◆ In an effort to inform and communicate with our colleagues, our CEO held 15 virtual all-colleague town hall meetings throughout 2020.We maintained a dedicated pandemic portal with real-time updates and distributed 3 colleague engagement surveys. ◆ To support our colleagues during the pandemic, we provided bonuses and pay premiums to colleagues who continued to serve our clients from one of our locations, interest-free hardship and emergency medical loans for over 500 colleagues and we enhanced our benefits and paid time off programs. ◆ For many years, we have partnered with United Way in order to maximize our social impact. In 2020, we doubled our matching gift program to provide a 2:1 match for colleague contributions to non-profit organizations that support civil rights, anti-racism and social justice causes. Colleague participation in the program tripled from 2019. |
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2021 Proxy Statement | 9 |
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Corporate Social Responsibility
Sustainability/ |
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◆ We have begun to consider the effects of climate risk on our loan portfolio and other aspects of our business. |
Corporate Governance | ◆ We maintain a strong ◆ Our colleagues
◆ In addition to our regularly scheduled Board meetings, in response to the COVID-19 pandemic and in furtherance of 2020. ◆ Stewardship of the Company’s corporate social responsibility resides with the Nominating and Corporate Governance Committee of our Board of Directors. The Committee receives regular updates on strategy, target metrics and results. ◆ We were recently recognized by
◆ We maintain strong ◆ We maintain an active stockholder engagement program.
For a fulsome discussion of our corporate governance practices, seeCorporate Governance at First Midwest. |
Actions in Response to the COVID-19 Pandemic
As we navigate the COVID-19 pandemic, our top priority has been the health, safety and well-being of our colleagues, clients and the communities we serve. We are undertaking significant efforts to support our colleagues, clients and communities and are committed to regular and open communications. As an organization, we have implemented remote working arrangements where possible while remaining mindful that the banking industry is considered an essential business supporting our nation’s financial system.
We have implemented a number of initiatives for the benefit of our colleagues to help them through this unprecedented and challenging time. We also have announced several programs and services designed to alleviate some of the financial stress and burden that our clients may be facing due to the COVID-19 pandemic, and we are participating as a lender to small businesses under the Paycheck Protection Program passed as part of the CARES Act. In addition, we announced a $2.5 million philanthropic commitment through the First Midwest Charitable Foundation to aid in the support of our community and nonprofit partners as we all collectively work to help those impacted by the pandemic.
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Nominees for Election
Our Board of Directors currently consists of twelve directors.directors but will be reduced to eleven members as described below. Each director is elected for a one-year term. Upon the recommendation of our Nominating and Corporate Governance Committee, our Board of Directors unanimously nominated each of our current directors to stand for election at this year’s Annual Meeting. These twelve directors are Barbara A. Boigegrain, Thomas L. Brown, Phupinder S. Gill, Kathryn J. Hayley, Peter J. Henseler, Frank B. Modruson, Ellen A. Rudnick, Mark G. Sander, Michael L. Scudder, Michael J. Small, and Stephen C. Van Arsdell and J. Stephen Vanderwoude.to stand for election at this year’s Annual Meeting, all of whom are currently serving as directors of the Company.
Each of the nominees, other than Mr. Scudder, our Chairman and Chief Executive Officer, and Mr. Sander, our President and Chief Operating Officer, meets the standards of independence under our Corporate Governance Guidelines and the rules of the NASDAQ Stock Market.
J. Stephen Vanderwoude also currently serves as a director and his term expires at this Annual Meeting. As previously announced, Mr. Vanderwoude, who has served as one of our directors since 1991, has advised us that he will retire from the Board upon the conclusion of his current term. Mr. Vanderwoude has been a valuable member of our Board during his tenure as a director, and we have benefited greatly from his important contributions, strategic insight and other public company board experience. Mr. Vanderwoude also served as our first Lead Independent Director and helped establish the duties, responsibilities and expectations for this role.
Prior to the Annual Meeting, the Board will reduce the number of directors to eleven members. As such, at and following the Annual Meeting, our Board of Directors will consist of eleven members until such time as the Board may determine to change the number of directors.
Directors of the Company are elected by a majority of the votes cast at the Annual Meeting. If a continuing director fails to receive the required majority vote for election, the director is required to tender his or her resignation in accordance with our By-Laws and Corporate Governance Guidelines, and the Board of Directors, upon the recommendation of the Nominating and Corporate Governance Committee, will determine whether it is in the best interests of the Company to accept or reject any tendered resignation, or whether other action should be taken. The Board of Directors will publicly disclose its decision and the rationale behind it within 90 days from the date of the certification of election results.results are certified.
Each nominee has informed us that he or she is willing to serve as a director if elected. Should any nominee become unable or refuse to serve as a director upon election, it is intended that the persons named as proxies on the Proxy Card will vote for the election of such other person as the Board of Directors may recommend.
Board Composition and Experience
Our twelveeleven continuing directors have significant and varied operational, financial, risk, technology, corporate governance, merger and acquisition, leadership and other experience, and possess diversity of skills, thought, gender and race. OverOur Nominating and Corporate Governance Committee monitors the past several years,composition of our Board of Directors and we have enhancedperiodically seek to add new directors to the Board where additional skills or experience are determined to be advisable and in an effort to enhance the industry and Company-specific knowledge of our Board of Directors with fresh perspectives brought by our new directors. We believe that our directors are active and engaged and have the skills necessary to guide the Company as it grows, as our business strategy and the banking industry around us continue to evolve and as the financial services sector becomes ever more competitive.
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Item 1 Election of Directors
Below are certain demographic and operational highlights of our Board of Directors, including the varying tenure, diversity, qualifications and experience of our continuing directors.
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9 years |
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Average Independent Director Tenure |
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83% |
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8.8 years | | | 36% | | | 63 years |
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Average Independent Director Tenure | | | Racial and Gender Diversity* | | | Average Age |
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82% | | | Annual Elections | | | Engaged Board |
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Independent | | | Directors elected each year for one-year terms | | | All directors attended 100% of 2020 meetings |
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Director Education | | | 91% | | | Diverse Leadership |
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Comprehensive director education provided throughout the year | | | Directors possess other public company experience | | | One of our female directors serves as our Lead Independent Director and two female directors chair Board Committees |
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* | Three of our directors are diverse on the basis of gender and one of our directors is diverse on the basis of race. |
* All of our directors have satisfied our director stock ownership guidelines with the exception of one of our newer directors who is still accumulating stock within the timeframe allowed under the guidelines.
Each of our twelveeleven continuing directors has extensive professional experience that contributes to a diversity of skills, perspectives and leadership qualities on our Board of Directors, as summarized below.
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First Midwest Bancorp, Inc. | ||||||||||||||||||||||||
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Item 1 Election of Directors
Nomination Process
In identifying, evaluating and recommending nominees for the Board of Directors, our Nominating and Corporate Governance Committee places primary emphasis on the criteria set forth in our Corporate Governance Guidelines.
We do not set specific minimum qualifications that nominees must meet in order to be recommended to the Board of Directors. Each nominee is evaluated based on his or her individual merits, taking into account the needs of the Company and the composition of our Board. The Nominating and Corporate Governance Committee discusses and evaluates possible candidates in detail, and we sometimes engage outside consultants are sometimes engaged to help identify potential candidates.
When making recommendations for nominees to the Board, the Nominating and Corporate Governance Committee attempts to include directors who, when taken together with the other nominees and continuing directors, will create a group that offers a range of professional experience, background, age, gender or minority status, perspectives and skills. The Nominating and Corporate Governance Committee will consider and evaluate director candidates recommended by stockholders in the same manner as other candidates identified by the Committee. A stockholder who desires to formally nominate a candidate must do so by following the procedures described in the Company’s Certificate of Incorporation and By-Laws.
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Item 1 Election of Directors
Set forth below is the name of each director nominee, along with his or her age, principal occupation for at least the previous five years and other professional experience.
Nominees Standing for Election at the Annual Meeting
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| Barbara A. Boigegrain | |||
Current Position: Chief Executive Officer and General Secretary, Wespath Benefits and Investments Committee(s): Compensation Committee (Chair), Nominating and Corporate Governance Committee, Advisory Committee Independent Director Age: 63 Director Since: 2008 | ||||
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Current Position: Former Senior Vice President and Chief Financial Officer, RLI Corp. (NASDAQ) Committee(s): Audit Committee, Enterprise Risk Committee (Chair), Advisory Committee Independent Director Age: 64 Director Since: 2017 |
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EXPERIENCE AND QUALIFICATIONS Ms. Boigegrain has served as the Chief Executive Officer and General Secretary of Wespath Benefits and Investments (formerly the General Board of Pension and Health Benefits of The United Methodist Church) since 1994. Wespath is a pension, health and welfare benefit trustee and administrator and an institutional investment manager that is one of the largest faith-based pension funds in the United States, with $25 billion of assets under management. Wespath is a global leader in environmental, social and governance (ESG) Prior to 1994, Ms. Boigegrain spent eleven years as a consultant with Towers Perrin and four years with KPMG LLP and Dart Industries as a manager and analyst. Ms. Boigegrain is a member of the As the CEO and General Secretary of Wespath, Ms. Boigegrain has overseen its restructuring, significantly improved its performance and services and increased its assets under management. In her experience as a benefits consultant, she established the San Diego office of Towers Perrin. | ||||
REASONS FOR NOMINATION Through her extensive employee benefits, compensation, executive and corporate governance experience, Ms. Boigegrain brings significant leadership, business development, operations and management skills to our Board of Directors. She also provides valuable knowledge of compensation, financial markets, strategic growth, and ESG and sustainability investing. | ||||
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Ms. Boigegrain earned a Bachelor of Arts degree in Biology and Psychology from Trinity University in 1979.
Through her extensive employee benefits, compensation, executive and corporate governance experience, Ms. Boigegrain brings significant leadership, business development, operations and management skills to our Board of Directors. She also provides valuable knowledge of compensation, financial markets, strategic growth, and ESG and sustainability investing.
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Item 1 Election of Directors
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EXPERIENCE AND QUALIFICATIONS | ||
Mr. Brown served as the Senior Vice President and Chief Financial Officer of RLI Corp., a specialty insurer serving diverse niche property, casualty and surety markets from 2017 until his retirement on December 31, 2019. From 2011 to 2017, he served as RLI Corp.’s Vice President and Chief Financial Officer. Previously, Mr. Brown was a partner of PricewaterhouseCoopers LLP, where he served for ten years as its Midwest Regional Financial Services Director and led teams responsible for the banking, insurance, capital markets and investment management business sectors. Mr. Brown currently serves on the board of directors of the Chicago Shakespeare Theater. In 2020, Mr. Brown joined the board of directors of Easter Seals DuPage & Fox Valley, and he previously served on the board of Easter Seals Central Illinois. From 2004 through 2017, Mr. Brown served on the board of trustees of Illinois Wesleyan University. Mr. Brown earned a Bachelor of Science degree in Accounting from Illinois Wesleyan University in 1979. He REASONS FOR NOMINATION With his extensive finance, accounting, risk management and financial services background, combined with the | ||
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a public company, Mr. Brown brings valuable finance, accounting, strategic planning, risk and senior management skills and experience to our Board of Directors. |
Mr. Brown earned a Bachelor of Science degree in Accounting from Illinois Wesleyan University in 1979. He is a certified public accountant.
With his extensive finance, accounting, risk management and financial services background, combined with the insights of the executive management team of a public company, Mr. Brown brings valuable finance, accounting, strategic planning, risk and senior management skills and experience to our Board of Directors.
Item 1 Election of Directors
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Phupinder S. Gill | ||||
Current Position:Former Chief Executive Officer, CME Group, Inc. (NYSE) Committee(s): Audit Committee, Enterprise Risk Committee Independent Director Age: 60 Director Since: 2010 | ||||
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Current Position: Chief Executive Officer, Rosewood Advisory Services, LLC Committee(s): Audit Committee, Compensation Committee Independent Director Age: 62 Director Since: 2016 |
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EXPERIENCE AND QUALIFICATIONS Mr. Gill served as the Chief Executive Officer of CME Group Inc., a global derivatives marketplace and exchange, from 2012 until his retirement on December 31, 2016. Prior thereto, he served as President from 2007 until 2012, and he previously served as President and Chief Operating Officer of CME Holdings and of CME from 2004 until 2007. From 2000 to 2003, he served as Managing Director and President of CME Clearing. Mr. Gill was also the President of GFX Corp., a wholly-owned subsidiary of CME Group that provides liquidity in foreign exchange futures, from 1998 until 2012. Mr. Gill currently serves on the board of directors of The Alexander Maxwell Grant Foundation. From 2012 until his retirement on December 31, 2016, he served on the boards of CME Group and the World Federation of Exchanges. He also previously served on the boards of CME Clearing Europe (CME Group’s UK Clearing House), Bursa Malaysia Derivatives Berhad, Bolsa Mexicana de Valores, S.A.B. de C.V., CME Group Foundation and CME Group Community Foundation. Mr. Gill is a past member of CME Group’s Competitive Markets Advisory Council. | ||||
REASONS FOR NOMINATION Through his board and executive management experience, Mr. Gill brings important public company, technology, risk management, operating and executive experience to our Board of Directors, as well as experience with M&A and global affairs. He also provides the perspective of a former chief executive officer of a public company. | ||||
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Mr. Gill earned a Bachelor of Science degree in Finance in 1985 and a Master of Business Administration with a concentration in Finance in 1987 from Washington State University.
Through his board and executive management experience, Mr. Gill brings important public company, technology, risk management, operating and executive experience to our Board of Directors, as well as experience with M&A and global affairs. He also provides the perspective of a former chief executive officer of a public company.
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Item 1 Election of Directors
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EXPERIENCE AND QUALIFICATIONS | ||
Ms. Hayley has served as the Chief Executive Officer of Rosewood Advisory Services, LLC, a business advisory services firm, since 2015. Previously, Ms. Hayley served as an Executive Vice President of UnitedHealthcare (a subsidiary of UnitedHealth Group, Inc. (NYSE)), a position in which she served from 2012 to 2015, overseeing a number of strategic initiatives at this global healthcare company. From 2006 to 2012, she served as an executive of Aon plc (NYSE), including as Chief Executive Officer of Aon Consulting Worldwide and Aon Hewitt Consulting Americas. Prior to her service at Aon, Ms. Hayley was an information technology partner at Deloitte Consulting LLP and led the U.S. financial services practice. She also served on the board of directors of Deloitte & Touche LLP U.S. Ms. Hayley currently serves on the | ||
| REASONS FOR NOMINATION | |
Through her extensive information technology and financial services background and her broad executive management experience, as well as her employee benefits and talent management experience, Ms. Hayley provides our Board with valuable strategic planning, leadership and human resources and benefits experience, as well as the insights of a former senior executive of several public companies. |
Ms. Hayley earned a Bachelor of Science degree in Applied Computer Science from Illinois State University in 1979 and a Master of Business Administration, with concentrations in Marketing and Finance, from the Kellogg School of Management at Northwestern University in 1984.
Through her extensive information technology and financial services background and her broad executive management experience, as well as her employee benefits and talent management experience, Ms. Hayley provides our Board with valuable strategic planning, leadership and human resources and benefits experience, as well as the insights of a former senior executive of several public companies.
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Item 1 Election of Directors
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Peter J. Henseler | ||||
Current Position:President, TOMY International Committee(s): Compensation Committee, Nominating and Corporate Governance Committee Independent Director Age: 62 Director Since: 2011 | ||||
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Current Position: President, Modruson & Associates, LLC Committee(s): Audit Committee, Enterprise Risk Committee Independent Director Age: 61 Director Since: 2016 |
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EXPERIENCE AND QUALIFICATIONS Mr. Henseler is the President and a director of TOMY International, a wholly-owned subsidiary of TOMY Company, Ltd., a global designer and marketer of toys and infant products. He rejoined TOMY International in 2017 after serving as Vice Chairman until his retirement in 2012. Mr. Henseler previously held the position of President of TOMY International from 2011 until 2012. He was President of RC2 Corporation (NASDAQ) from 2002 to 2011, at which time TOMY Company acquired RC2. He served as RC2’s Executive Vice President of Sales and Marketing from 1999 to 2002. Mr. Henseler also previously served as a director of RC2. Prior to joining RC2, Mr. Henseler held marketing positions at McDonald’s Corporation and Hasbro, Inc. In February 2018, he completed his tenure as Chairman of the Toy Industry Foundation and now serves as an executive advisor to the board. He also previously served on the board of directors of the American Toy Industry Association. | ||||
REASONS FOR NOMINATION Mr. Henseler brings important executive management, operating and leadership skills and insights to our Board of Directors through his experience as a president of a global public company, as well as his substantial operational, brand management and marketing experience. | ||||
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Mr. Henseler earned a Bachelor of Science degree in Marketing from Xavier University in 1980.
Mr. Henseler brings important executive management, operating and leadership skills and insights to our Board of Directors through his experience as a president of a global public company, as well as his substantial operational, brand management and marketing experience.
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Item 1 Election of Directors
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EXPERIENCE AND QUALIFICATIONS | ||
Mr. Modruson has served as President of Modruson & Associates, LLC, a management consulting firm, since 2015. Previously, Mr. Modruson spent the majority of his career at Accenture plc, a global professional services company, where he served as a client partner and as Chief Information Officer. He currently serves on the | ||
| REASONS FOR NOMINATION | |
With his significant technology, strategy and consulting background, as well as experience on other public company boards, Mr. Modruson brings important strategic and business insights, as well as technology, risk management and operational experience to our Board of Directors. |
Mr. Modruson earned a Bachelor of Science degree in Computer Science from Dickinson College in 1984 and a Master of Science degree in Computer Science from Pennsylvania State University in 1987.
With his significant technology, strategy and consulting background, as well as experience on other public company boards, Mr. Modruson brings important strategic and business insights, as well as technology, risk management and operational experience to our Board of Directors.
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16 | First Midwest Bancorp, Inc. |
Item 1 Election of Directors
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Ellen A. Rudnick | ||||
Current Position:Lead Independent Director of the Company; Senior Advisor and Adjunct Professor of Entrepreneurship, University of Chicago Booth School of Business Committee(s): Nominating and Corporate Governance Committee (Chair), Compensation Committee, Advisory Committee Independent Director Age: 70 Director Since: 2005 | ||||
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Current Position: President and Chief Operating Officer of the Company Inside Director Age: 62 Director Since: 2014 |
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EXPERIENCE AND QUALIFICATIONS Ms. Rudnick was appointed as the Company’s Lead Independent Director in 2020. She has served at the University of Chicago Booth School of Business since 1999. She is currently a Senior Advisor and Adjunct Professor of Entrepreneurship, and previously served as the Executive Director of the Polsky Center for Entrepreneurship and Innovation at the University of Chicago. Prior to joining the University of Chicago, Ms. Rudnick served as President and Chief Executive Officer of Healthcare Knowledge Resources, President of HCIA, Chairman of Pacific Biometrics and Corporate Vice President of Baxter Healthcare Corporation. Ms. Rudnick currently serves on the boards of directors of She has spent over thirty years in executive management and entrepreneurial activities, primarily in the health care and information services industries. She serves in various leadership positions with several civic and nonprofit organizations in the Chicago metropolitan area, including having served on the board of the Northshore University Health System for over 20 years and on the board of Hyde Park Angels, and currently is on the boards of directors of the Chicagoland Entrepreneurship Center (1871) and Ms. Rudnick earned a Bachelor of Arts degree in Italian (with a minor in Economics) from Vassar College in 1972 and a Master of Business Administration with a concentration in Finance from the | ||||
With her extensive business background and her public company board experience, Ms. Rudnick brings important leadership, corporate governance, business and entrepreneurial experience to our Board of Directors. | ||||
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Ms. Rudnick earned a Bachelor of Arts degree in Italian (with a minor in Economics) from Vassar College in 1972 and a Master of Business Administration with a concentration in Finance from the University of Chicago in 1973.
With her extensive business background and her public company board experience, Ms. Rudnick brings important leadership, corporate governance, business and entrepreneurial experience to our Board of Directors.
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Item 1 Election of Directors
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EXPERIENCE AND QUALIFICATIONS | ||
Mr. Sander is the President and Chief Operating Officer of the Company and of First Midwest Bank. Mr. Sander also serves as Vice Chairman of the Board of First Midwest Bank. He served as the Senior Executive Vice President and Chief Operating Officer of the Company from 2011 until his promotion in Prior to joining the Company in 2011, Mr. Sander served as Executive Vice President, Director of Commercial Banking at Associated Banc-Corp (NYSE), where he oversaw Associated’s commercial banking, treasury management, insurance brokerage and capital markets businesses. He also served as a member of Associated’s Executive and ALCO Committees. Previously, he served as a commercial banking executive at Bank of America and in numerous leadership positions in commercial banking at LaSalle Bank. Mr. Sander has more than thirty-five years of experience in the financial services industry. Mr. Sander currently serves on the boards of directors of the Chicago Zoological Society (since 2006) and the Mercy Home for Boys & Girls (since 2019). He is also a member of the leadership council at Chicago Youth Centers and the Dean’s Business Council for the Gies College of Business at the University of Illinois. Additionally, Mr. Sander serves on the executive committee of the Banker’s Club of Chicago, and he is an active member of the Executives’ Club of Chicago and the Economic Club of Chicago. | ||
| REASONS FOR NOMINATION | |
Mr. Sander brings significant banking and executive experience to our Board of Directors. His important leadership position with the Company and First Midwest Bank and his involvement with the operations, vision and strategy of the Company and the Bank provide the Board with an understanding of the Company’s day-to-day operations and strategic goals. |
Mr. Sander earned a Bachelor of Science degree in Finance from the University of Illinois in 1980 and a Master of Business Administration with a concentration in Finance and International Economics from the University of Chicago in 1983.
Mr. Sander brings significant banking and executive experience to our Board of Directors. His important leadership position with the Company and First Midwest Bank and his involvement with the operations, vision and strategy of the Company and the Bank provide the Board with an understanding of the Company’s day-to-day operations and strategic goals.
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Item 1 Election of Directors
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Michael L. Scudder | ||||
Current Position:Chairman and Chief Executive Officer of the Company Committee(s): Advisory Committee (Chair) Inside Director Age: 60 Director Since: 2008 | ||||
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Current Position: Chief Executive Officer, K4 Mobility LLC Committee(s): Compensation Committee, Enterprise Risk Committee Independent Director Age: 63 Director Since: 2010 |
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EXPERIENCE AND QUALIFICATIONS Mr. Scudder is the Chairman of the Board (since 2017) and Chief Executive Officer (since 2008) of the Company. He also serves as Chairman and Chief Executive Officer of First Midwest Bank. Mr. Scudder served as the Company’s President from 2007 to Mr. Scudder began his professional career at KPMG LLP, an international public accounting firm. Mr. Scudder is a member of the board of directors of the American Bankers Association and served as the chair of ABA’s CEO | ||||
REASONS FOR NOMINATION Mr. Scudder brings extensive executive management, financial and banking experience to our Board of Directors. He has important institutional knowledge of the Company and its business and clients, and his leadership has been critical to the growth and development of the Company. His day-to-day management of the Company provides the Board with Company-specific and industry experience and expertise, as well as a complete understanding of the Company’s vision, strategy and operations. | ||||
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Mr. Scudder earned a Bachelor of Science degree in Accounting from Illinois Wesleyan University in 1982, and a Master of Business Administration with a concentration in Finance from DePaul University in 1993.
Mr. Scudder brings extensive executive management, financial and banking experience to our Board of Directors and has important institutional knowledge of the Company and its business and clients. His day-to-day management of the Company provides the Board with Company-specific and industry experience and expertise, as well as a complete understanding of the Company’s vision, strategy and operations.
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Item 1 Election of Directors
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EXPERIENCE AND QUALIFICATIONS | ||
Mr. Small is a founder and the Chief Executive Officer of K4 Mobility LLC, a technology developer and provider of satellite communications services, since August 2018. Previously, Mr. Small served as the President and Chief Executive Officer and a director of Gogo, Inc. (NASDAQ), an airborne communications service provider, from 2010 until March 2018. Prior to joining Gogo, Mr. Small served as the Chief Executive Officer and a director of Centennial Communications Corp. (NASDAQ) from 1999 to 2009. From 1995 to 1998, Mr. Small was the Executive Vice President and Chief Financial Officer of 360 Degrees Communications Company. Prior to 1995, he held the position of President of Lynch Corporation (NYSEMKT), a diversified acquisition-oriented company with operations in telecommunications, manufacturing and transportation services. Mr. Small is an active board member of Leadership Greater Chicago and the Gun Violence Prevention PAC. Mr. Small also serves on the Advisory Council for the Polsky Center for Entrepreneurship and Innovation at the University of Chicago. | ||
| REASONS FOR NOMINATION | |
Through his board, executive and financial experience, Mr. Small brings extensive public company, operating and executive experience to our Board of Directors, as well as strategic, financial, technology and M&A experience. He also provides the perspective of a former chief executive officer of a public company. |
Mr. Small earned a Bachelor of Arts degree in History from Colgate University in 1979 and a Master of Business Administration with a concentration in Finance from the University of Chicago in 1981.
Through his board, executive and financial experience, Mr. Small brings extensive public company, operating and executive experience to our Board of Directors, as well as strategic, financial, technology and M&A experience. He also provides the perspective of a former chief executive officer of a public company.
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18 | First Midwest Bancorp, Inc. |
Item 1 Election of Directors
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Stephen C. Van Arsdell | |||
Current Position:Former Senior Partner, Chairman and Chief Executive Officer, Deloitte & Touche LLP Committee(s): Audit Committee (Chair), Nominating and Corporate Governance Committee, Advisory Committee Independent Director Age: 70 Director Since: 2017 |
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EXPERIENCE AND QUALIFICATIONS | Mr. Van Arsdell is a former senior partner of Deloitte & Touche LLP, where he served as Chairman and Chief Executive Officer from 2010 to 2012, and as Deputy Chief Executive Officer from 2009 to 2010. Previously, he served as Deloitte’s partner-in-charge of its financial services practice in the Midwest, and was a member of Deloitte’s board from 2003 through 2009. Mr. Van Arsdell is a member of the Audit Committee of Brown Brothers Harriman & Co. (since 2015). He also is a member of the board of directors and a member of the Audit Committee of Mueller Water Products, Inc. (since 2019; NYSE). He is a member of the Dean’s advisory council for the | ||
REASONS FOR NOMINATION Mr. Van Arsdell brings to our Board extensive finance, accounting, and risk management experience, together with strategic and leadership skills developed through executive leadership positions with a global accounting and advisory services organization. | |||
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Mr. Van Arsdell earned a Bachelor of Science degree in Accounting and a Master of Accounting Science degree from the University of Illinois in 1972 and 1973, respectively. He is a certified public accountant.
Mr. Van Arsdell brings to our Board extensive finance, accounting, and risk management experience, together with strategic and leadership skills developed through executive leadership positions with a global accounting and advisory services organization.
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Item 1 Election of Directors
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Mr. Vanderwoude earned a Bachelor of Science degree in Engineering from the University of Pennsylvania in 1967 and a Master of Business Administration with concentrations in Economics and Marketing from the University of Chicago in 1977.
Through his chief executive officer and director experience at other public companies, professional background and considerable business accomplishments and achievements, Mr. Vanderwoude brings valuable skills and experience in leadership, business and risk management, strategic planning, finance, M&A and public company matters to our Board of Directors.
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For more information regarding our Board of Directors, its members, its committees and our corporate governance practices, please see the section of this Proxy Statement entitledCorporate Governance at First Midwestor visit the Investor Relations section of our website at www.firstmidwest.com/officersdirectorshttps://investor.firstmidwest.com/corporate-information/corporate-profile/.
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Recommendation of our Board of Directors |
The Board of Directors unanimously recommends that stockholders vote FOR the election of each of |
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2021 Proxy Statement | 19 |
ITEM 2 APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE FIRST MIDWEST BANCORP, INC. 2018 STOCK AND INCENTIVE PLAN
We are seeking stockholder approval of the Amendment and Restatement of the First Midwest Bancorp, Inc. 2018 Stock and Incentive Plan (for purposes of this Item 2, the “Amended and Restated Stock and Incentive Plan”), which is attached as Appendix A to this Proxy Statement. The Amended and Restated Stock and Incentive Plan will amend and restate our existing Stock and Incentive Plan, which was approved by our stockholders in 2018. Our Board of Directors, upon the recommendation of the Compensation Committee, approved and adopted the Amended and Restated Stock and Incentive Plan, subject to stockholder approval.
Stockholder approval of the Amended and Restated Stock and Incentive Plan is required to increase the number of shares of common stock reserved for issuance under the First Midwest Bancorp, Inc. 2018 Stock and Incentive Plan by 2,500,000 shares. As of March 26, 2021, the Record Date for the Annual Meeting, approximately 1,070,036 shares of our common stock remained eligible for issuance under the Stock and Incentive Plan.
The Amended and Restated Stock and Incentive Plan also includes certain clarifications and updates consistent with compensation best practices, as follows:
| ◆ | Clarifies that all Nonqualified Stock Options shall expire no later than ten years after the date of grant. |
| ◆ | Clarifies that, consistent with the Company’s existing practices, to the extent that dividends or dividend equivalents are credited to Performance Units or Performance Shares, such amounts shall not be paid until the performance period ends and the underlying Performance Units or Performance Shares have vested. |
| ◆ | Updates the treatment of Other Awards (as defined in the Amended and Restated Stock and Incentive Plan) in the event of a change in control to be consistent with the treatment of stock options, stock appreciation rights, restricted stock and restricted stock units and performance shares and performance units: Upon a change in control, in the event that a Substitute Award is not provided (which would provide for double trigger protection), all Other Awards will become fully vested and exercisable. |
The Company is asking stockholders to approve the terms listed above and authorize additional shares of common stock available under the Amended and Restated Stock and Incentive Plan at a level that the Company believes will, on the basis of current grant practices and plan design, be sufficient through 2025. Approval of the Amended and Restated Stock and Incentive Plan will authorize an additional 2,500,000 shares of common stock for awards beyond the 1,070,036 shares currently remaining eligible for issuance under the existing plan, for a total of 3,570,036 shares authorized for equity awards to our employees.
The following description sets forth the material terms of the Amended and Restated Stock and Incentive Plan. It does not purport to be complete and is qualified in its entirety by reference to the provisions of the Amended and Restated Stock and Incentive Plan attached to this Proxy Statement as Appendix A. All capitalized terms that are not defined in this Proxy Statement are used as defined in the Amended and Restated Stock and Incentive Plan.
Purpose of the Amended and Restated Stock and Incentive Plan
The Amended and Restated Stock and Incentive Plan is intended to advance the interests of the Company and its subsidiaries by providing incentives and motivation to employees of the Company and its subsidiaries that will link their personal interests to the financial success of our Company and its subsidiaries. The Amended and Restated Stock and Incentive Plan is designed to provide flexibility to the Company and its subsidiaries in their ability to attract and retain the services of employees upon whose judgment, interest and effort the successful conduct of our operations is largely dependent.
Grant Practices Uses Mix of Performance-Based and Time-Based Awards
We currently utilize two types of long-term equity-based incentive compensation awards: restricted stock or restricted stock units (awarded to all participants), and performance shares (currently awarded to senior officers
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20 | First Midwest Bancorp, Inc. |
Item 2 First Midwest Bancorp, Inc. Amended and Restated Stock and Incentive Plan
only). Our Compensation Committee believes that using a mix of restricted stock and performance shares for our executive officers results in long-term incentive awards with the appropriate balance of strong retention value and a clear connection between results achieved and compensation earned. Awards to our Chief Executive Officer in recent years have been weighted more heavily to performance shares than restricted stock (approximately a 65%/35% mix in 2020), based on grant date value.
Key Considerations
We are recommending that our stockholders approve the Amended and Restated Stock and Incentive Plan because we believe that the design of the Amended and Restated Stock and Incentive Plan and the number of shares to be authorized for issuance thereunder will enable us to continue good corporate governance practices in granting equity to employees, consistent with the interests of stockholders and reflective of current trends, competitive practices and investor attitudes. In addition, without approval of an amended and restated plan with additional shares, we will have sufficient shares to issue awards to our employees only through 2022. The following highlights the analysis of certain key considerations regarding the Amended and Restated Stock and Incentive Plan:
Run Rate
Run rate, a measure of the speed at which companies use shares available for grant in their equity compensation plans, is an important factor for investors concerned about stockholder dilution. The run rate is defined as: the gross number of equity awards granted in a given year divided by the weighted average number of shares of common stock outstanding. Our run rates for the past three years are shown in the chart below:
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Restricted Stock/Units |
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| 497,000 |
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| 655,000 |
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| 526,333 |
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Performance Shares | | 133,000 | | | 146,000 | | | 187,000 | | | 155,333 | |
Director Awards | | 14,000 | | | 14,000 | | | 20,000 | | | 16,000 | |
Net Increase in Diluted Shares due to Equity Awards | | 574,000 | | | 657,000 | | | 862,000 | | | 697,666 | |
Weighted Average Basic Shares Outstanding | | 102,850,000 | | | 108,156,000 | | | 112,355,000 | | | 107,787,000 | |
We use the annual usage of shares to help determine, among other things, the expected remaining life of a plan based on the remaining number of shares authorized for issuance under the plan. At similar annual usage levels, the 1,070,036 shares remaining eligible for issuance under the Stock and Incentive Plan may be depleted soon after the issuance of the Company’s annual equity awards in 2022. The additional 2,500,000 shares to be authorized upon approval of the Amended and Restated Stock and Incentive Plan, combined with the 1,070,036 shares available from the Stock and Incentive Plan, and shares that become available upon cancellations or forfeitures under the Stock and Incentive Plan, are currently expected to cover awards through 2025.
Overhang
Overhang is a commonly used measure of assessing the dilutive impact of equity programs such as the Amended and Restated Stock and Incentive Plan. The overhang is equal to the number of equity award shares outstanding plus the number of shares available to be granted, divided by the total shares of common stock outstanding. Overhang shows how much existing stockholder ownership would be diluted if all outstanding awards and authorized but unissued shares were introduced into the market. As of March 26, 2021, the Record Date, the
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2021 Proxy Statement | 21 |
Item 2 First Midwest Bancorp, Inc. Amended and Restated Stock and Incentive Plan
additional 2,500,000 shares being requested in this proposal would bring our aggregate overhang to 4.9%, as follows:
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Shares underlying outstanding awards under Stock and Incentive Plan | 2,079,467 | ||
(restricted stock/units and performance shares) | |||
Shares available for issuance under Stock and Incentive Plan | 1,070,036 | ||
Total shares authorized for or outstanding under employee awards | 5,649,503 | ||
Total shares outstanding | 114,334,259 | ||
Overhang | 4.9 | % |
An overhang of 4.9% aligns with the median levels at commercial banking organizations, including the companies in our peer group.
Corporate Governance Aspects of the Amended and Restated Stock and Incentive Plan
In designing and recommending the Amended and Restated Stock and Incentive Plan to our stockholders, the Compensation Committee and our Board of Directors also noted the strong corporate governance aspects of the Amended and Restated Stock and Incentive Plan, as summarized in the following table.
Significant Features | Description | |
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Limit on Shares Authorized | If the Amended and Restated Stock and Incentive Plan is approved by our stockholders, other than shares that become available for issuance under the Amended and Restated Stock and Incentive Plan from cancellations or forfeitures of outstanding awards under the Stock and Incentive Plan, no more than 3,570,036 total shares of common stock will be authorized for issuance under the Amended and Restated Stock and Incentive Plan, or approximately 3.1% of the Company’s issued and outstanding common stock as of the Record Date. | |
No Liberal Share Recycling | The Amended and Restated Stock and Incentive Plan contains responsible share recycling provisions: | |
One-Year Minimum Vesting Period | Awards of shares under the Amended and Restated Stock and Incentive Plan are subject to a minimum of one-year vesting, restriction or performance periods, except that the Compensation Committee may grant awards that do not satisfy the minimum vesting period relating to an aggregate of 5% or fewer of the aggregate number of shares of stock authorized for issuance under the Amended and Restated Stock and Incentive Plan. Our current practice is to issue awards with a three-year vesting period. |
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22 | First Midwest Bancorp, Inc. |
Item 2 First Midwest Bancorp, Inc. Amended and Restated Stock and Incentive Plan
Significant Features | Description | |
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No Discounted Stock Options or Stock Appreciation Rights | Stock options and SARs must have an exercise price equal to or greater than the fair market value of our common stock on the date of grant. | |
No Re-pricing of Stock Options or Stock Appreciation Rights | Re-pricing of stock options and SARs is prohibited without stockholder approval, including by exchange for cash or a new or different award type. | |
“Double-Trigger” Required for Vesting on Change-in-Control | A change-in-control of the Company does not, by itself, trigger full vesting of awards under the Amended and Restated Stock and Incentive Plan. Any continuing or replacement awards will retain pre-change-in-control vesting and other terms, except that full vesting will occur in the event that a participant’s employment is involuntarily terminated (the occurrence of the “double trigger”). | |
Clawback and Ability for Other Protective Provisions | The Amended and Restated Stock and Incentive Plan authorizes the Compensation Committee to include clawback, holding period and other protective provisions, such as customer and employee non-solicitation covenants, in the terms of any award. | |
No Dividends or Dividend Equivalents Paid on Unvested Awards | No dividends or dividend equivalents on unvested awards will be paid until those awards are earned and vested. | |
Limits on Material Amendments and No Evergreen Provision | The Amended and Restated Stock and Incentive Plan authorizes a maximum number of shares of common stock for issuance and stockholder approval will be required for any additional shares or to make any material amendment to the Amended and Restated Stock and Incentive Plan. | |
Nontransferability of Awards | Awards granted under the Amended and Restated Stock and Incentive Plan may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated by a participant, otherwise than by will or by the laws of descent and distribution, until the underlying shares of common stock are earned and have vested. All rights granted to a participant with respect to an award under the plan are only exercisable by the participant and only during his or her lifetime. | |
Independent Committee Administration | | The Amended and Restated Stock and Incentive Plan will be administered by our Compensation Committee, which is comprised entirely of independent directors. |
Awards and Shares Authorized Under Existing Plan
The following table provides details of the number of shares subject to outstanding awards and remaining available for issuance under our existing equity plans (the Stock and Incentive Plan and the Non-Employee Directors Stock Plan) as of March 26, 2021, the Record Date:
Shares underlying outstanding stock awards under Stock and Incentive Plan (restricted stock/units and performance shares) | 2,079,467 | ||
Shares underlying outstanding option awards under existing Stock and Incentive Plan | — | ||
Weighted-average exercise price of options | — | ||
Weighted-average remaining contractual life of options (in years) | — | ||
Shares available for issuance under existing Stock and Incentive Plan | 1,070,036 | ||
Shares available for issuance under Non-Employee Directors Stock Plan | 79,224 | ||
Total shares available for issuance under equity plans | 1,149,260 |
These numbers differ from the amounts reported in our Form 10-K as of December 31, 2020. Since December 31, 2020, the Board granted an additional 893,967 shares in connection with our 2021 annual grant (208,770 performance shares and 685,197 shares of restricted stock and restricted stock units) and an additional
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2021 Proxy Statement | 23 |
Item 2 First Midwest Bancorp, Inc. Amended and Restated Stock and Incentive Plan
3,955 shares under our Non-Employee Directors Stock Plan, awards with respect to 509,606 shares vested, and awards with respect to 89,894 shares were forfeited, canceled or expired.
Administration
Our Compensation Committee will administer the Amended and Restated Stock and Incentive Plan. The Compensation Committee is currently composed of five directors, each of whom qualifies as a “non-employee director” under Rule 16b-3 under the Exchange Act and, to the extent applicable, as an “outside director” under Section 162(m) of the Internal Revenue Code. Each member of the Compensation Committee also meets the director independence criteria under applicable rules of the NASDAQ Stock Market. The Compensation Committee has broad discretion and authority, among other things, to select the employees to whom awards may be granted, to determine the terms, conditions, form and amount of the awards, to establish, where deemed applicable, performance goals with respect to awards and to measure and certify the achievement thereof, and to establish guidelines and procedures relating to awards.
The Compensation Committee will have full power to administer and interpret the Amended and Restated Stock and Incentive Plan and to adopt or establish, and to modify or waive, rules, regulations, agreements, guidelines, procedures and instruments that it deems necessary or advisable for the administration and operation of the Amended and Restated Stock and Incentive Plan. The Compensation Committee may delegate its authority to our Chief Executive Officer or other senior officers of the Company, provided that such delegation will not extend to actions with respect to awards made to “officers” for purposes of Rule 16b-3 under the Exchange Act. The Compensation Committee has delegated such authority only to our Chief Executive Officer, and he has exercised this authority on a limited basis for employee recruitment or retention purposes.
Eligibility
Any employee of the Company or any of its subsidiaries is eligible to receive an award under the Amended and Restated Stock and Incentive Plan. As of December 31, 2020, we had approximately 2,100 full-time employees.
Shares Available for Future Awards and Awards Outstanding
As of March 26, 2021, the Record Date, a total of approximately 1,070,036 shares of common stock remained available for future awards under the Stock and Incentive Plan. The Amended and Restated Stock and Incentive Plan provides that the total number of shares of common stock that may be issued pursuant to awards under the Amended and Restated Stock and Incentive Plan may not exceed 2,500,000 plus the 1,070,036 shares remaining available for future awards under the Stock and Incentive Plan and the number of shares that become available due to cancellation, forfeiture or expiration of, or the non-issuance of shares under an outstanding award granted under the Stock and Incentive Plan. The 3,570,036 shares represent approximately 3.1% of the Company’s outstanding common stock as of the Record Date. If the Company’s stockholders approve the Amended and Restated Stock and Incentive Plan, any awards made under the Stock and Incentive Plan that are outstanding at the time the Amended and Restated Stock and Incentive Plan is approved (i.e., unearned or unvested awards) will continue to be governed by the terms of the Stock and Incentive Plan before its amendment and restatement.
To the extent that shares of common stock subject to an outstanding award under the Stock and Incentive Plan, whether before or after its amendment and restatement, are not issued or are cancelled by reason of the failure to earn the shares issuable under, or the forfeiture, termination, surrender, cancellation or expiration of such award, then such shares will, to the extent of such forfeiture or cancellation, again be available for awards under the Amended and Restated Stock and Incentive Plan. Shares of common stock will not again be available if such shares are surrendered or withheld as payment of either the exercise price or of the withholding taxes in respect of an award. Awards settled solely in cash will not reduce the number of shares of common stock available for awards under the Amended and Restated Stock and Incentive Plan. The exercise or settlement of an award of SARs reduces the shares of common stock available under the Amended and Restated Stock and Incentive Plan in the gross number of SARs exercised or settled, not just the net amount of shares actually issued upon exercise or settlement of the award. Any shares acquired by the Company in the open market with proceeds received from option exercises will not be made available for awards under the Amended and Restated Stock and Incentive Plan.
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24 | First Midwest Bancorp, Inc. |
Item 2 First Midwest Bancorp, Inc. Amended and Restated Stock and Incentive Plan
No more than 5% of the shares of common stock may be issued with respect to awards with a vesting, restriction, or performance period of less than one year.
Shares of common stock issued in connection with awards that are assumed, converted or substituted pursuant to a merger, acquisition or similar transaction entered into by the Company or any of its subsidiaries will not reduce the number of shares available to be issued under the Amended and Restated Stock and Incentive Plan.
The source of common stock issued with respect to awards may be authorized and unissued shares or shares that have been or may be reacquired in the open market, in private transactions, or otherwise. In the event of any corporate event or transaction, including, but not limited to, a change in the shares of common stock or the capitalization of the Company, such as may result from a merger, consolidation, reorganization, recapitalization, separation, stock dividend, stock split, reverse stock split, split up, spin-off or other distribution of stock or property of the Company, combination of shares, exchange of shares, dividend in kind or other like change in capital structure or distribution, other than normal cash dividends, the number of shares of common stock authorized for issuance, available for issuance or covered by any outstanding award and the exercise price or other per share amounts applicable to any such award, and the various limitations described above, will be proportionately adjusted. Fractional shares will not be issued under the Amended and Restated Stock and Incentive Plan.
Awards
A participant in the Amended and Restated Stock and Incentive Plan is permitted to receive multiple grants of awards. The terms and provisions of a type of award with respect to any recipient need not be the same with respect to any other recipient of such award. The following types of awards may be granted under the Amended and Restated Stock and Incentive Plan:
Restricted Stock and Restricted Stock Units
An award of restricted stock is an award of shares of common stock that may not be sold or otherwise disposed of during a restricted period determined by the Compensation Committee. An award of restricted stock units is an award of the right to receive a share of common stock after the expiration of a restricted period determined by the Compensation Committee. The Compensation Committee also may impose additional restrictions on an award of restricted stock or restricted stock units, including, but not limited to, attainment of certain performance goals during the restricted period. To the extent provided by the Compensation Committee, restricted stock and restricted stock units also may include a dividend equivalent right, under which the recipient will be entitled to receive all dividends and other distributions paid with respect to such shares to the extent that they vest upon the expiration of the restricted period set by the Compensation Committee. For grants of restricted stock and restricted stock unit awards made in 2021, the Compensation Committee used a period of restriction of three years for full vesting.
Performance Shares and Performance Units
Performance shares and performance units are awards of a fixed or variable number of shares or of dollar-denominated units that are earned by achievement of performance goals established by the Compensation Committee. If the applicable performance criteria are met, the shares are earned and become unrestricted with respect to performance shares or an amount is payable with respect to performance units. Amounts earned under performance share and performance unit awards may be paid in common stock, cash or a combination of both. To the extent provided by the Compensation Committee, performance shares and performance units also may include a dividend equivalent right, under which the recipient will be entitled to receive all dividends and other distributions paid with respect to earned shares after completion of the performance period set by the Compensation Committee. The Amended and Restated Stock and Incentive Plan provides that dividends or dividend equivalents will not be paid unless and until the underlying performance shares or performance units vest. For grants of performance share awards made in 2021, the Compensation Committee used a performance period of three years.
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Item 2 First Midwest Bancorp, Inc. Amended and Restated Stock and Incentive Plan
Stock Options
Stock options may be nonqualified stock options or incentive stock options that comply with Section 422 of the Internal Revenue Code, or any other option to purchase stock that is permitted by law at the time of grant. The exercise period for any stock option will be determined by the Compensation Committee at the time of grant. The exercise price per share for all shares of common stock issued pursuant to stock options under the Amended and Restated Stock and Incentive Plan may not be less than the fair market value (as defined in the Amended and Restated Stock and Incentive Plan) of a share of common stock on the grant date. Each stock option may be exercised in whole, at any time, or in part, from time to time, after the grant becomes exercisable. The Amended and Restated Stock and Incentive Plan prohibits any reduction (re-pricing) of options without the approval of the Company’s stockholders, limits the term of any stock option to ten years, and limits the number of incentive stock options that may be granted under the Amended and Restated Stock and Incentive Plan to 2,000,000 shares of common stock. No dividends or dividend equivalent amounts may be paid with respect to any options.
Stock Appreciation Rights (SARs)
The Compensation Committee may grant SARs under the Amended and Restated Stock and Incentive Plan. Upon exercise, each SAR entitles a participant to receive an amount equal to the excess of the fair market value of a share of common stock on the date the SAR is exercised over an amount equal to the fair market value of a share of common stock on the date the SAR is granted. Payment of the exercise price may be made in shares of common stock having a fair market value on the date of exercise equal to the amount due upon the exercise of the SAR, may be paid in cash, or in a combination of stock and cash. Except in the event of certain corporate events or transactions, once a SAR is granted, the Compensation Committee will have no authority to reduce (re-price) the price fixed at the date of grant, nor may any SAR granted under the Amended and Restated Stock and Incentive Plan be surrendered to the Company as consideration for the grant of a new SAR with a lower price at the date of grant without the approval of the Company’s stockholders. The Amended and Restated Stock and Incentive Plan limits the term of any SAR granted to ten years and one day. No dividends or dividend equivalent amounts may be paid with respect to any SARs.
Other Awards
Participants may receive the right to receive common stock or a fixed or variable share denominated unit granted under the Amended and Restated Stock and Incentive Plan or any deferred compensation or similar plan established from time to time by the Company. To the extent provided by the Compensation Committee, other awards payable in shares of common stock also may include a dividend equivalent right, under which the recipient will be entitled to receive all dividends and other distributions paid with respect to such shares upon payment of the award. Participants in the Amended and Restated Stock and Incentive Plan may also receive cash bonuses and other cash incentive compensation awards under our short-term annual cash incentive compensation program.
Performance-Based Awards
The Compensation Committee may grant performance-based awards that vest, are paid or become exercisable upon the attainment of performance goals. Performance goals established with respect to an award may be based upon, but are not limited to, one or more of the following performance criteria or metrics:
| ◆ | Return measures (including, but not limited to, total stockholder return, return on assets and return on equity); |
| ◆ | Income or earnings measures (including, but not limited to, earnings per share, net income, net interest income, net interest margin and noninterest income); |
| ◆ | Revenue measures; |
| ◆ | Expense measures (including, but not limited to, expenses, operating efficiencies, efficiency ratios and non-interest expense); |
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26 | First Midwest Bancorp, Inc. |
Item 2 First Midwest Bancorp, Inc. Amended and Restated Stock and Incentive Plan
| ◆ | Balance sheet measures (including, but not limited to, assets, loans, charge-offs, loan loss allowances, non-performing assets, deposits, asset quality levels and investments); |
| ◆ | Wealth management measures (including, but not limited to, assets under management, held in trust or custody, client growth, client retention and wealth management fees); |
| ◆ | Enterprise risk management measures (including, but not limited to, interest-sensitivity gap levels, regulatory compliance, satisfactory internal or external audits and financial ratings); |
| ◆ | Fair market value of our common stock; |
| ◆ | Employee, customer or market-related objectives (including, but not limited to, employee satisfaction, customer growth, customer retention, customer satisfaction, number or type of customer relationships and market share); |
| ◆ | Achievement of balance sheet or income statement objectives; |
| ◆ | Individual participant or team performance objectives (including, but not limited to, key performance indicators, strategic or operational objectives, or project or personnel management); or |
| ◆ | Other financial, accounting or quantitative objectives established by the Compensation Committee. |
Performance goals for these criteria or metrics may be measured for achievement or satisfaction during the performance period set by the Compensation Committee. The performance goals may be in absolute terms or measured against, or in relationship to, other companies comparably, similarly or otherwise situated or other external or internal measures and may be based on, or adjusted for, other objective goals, events or occurrences established by the Compensation Committee. Performance goals may be particular to a line of business, subsidiary or other unit or the Company generally. Performance goals may provide for adjustments to include or exclude the effects of certain events as may be determined by the Compensation Committee, including, but not limited to, changes in accounting standards or principles, tax laws or other laws or provisions affecting reported results, a significant acquisition or divestiture, discontinued operations, claims, judgments or settlements or other unusual, infrequently occurring or unplanned items such as restructuring expenses, acquisition expenses, including writedowns or expenses related to goodwill and other intangible assets, stock offerings and stock repurchases, and provision for loan losses.
At the end of each performance period for a performance-based award, the Compensation Committee will determine the extent to which the performance goal established has been achieved and determine the amount to be paid, vested or delivered as a result thereof. In making such determination, the Compensation Committee may adjust or eliminate such amount to take into account additional factors as the Compensation Committee may deem appropriate to the assessment of performance during the performance period.
Termination of Employment
The disposition of each award held by a participant at termination of employment will be as determined by the Compensation Committee and set forth in the agreement applicable to such award or in any amendment or modification thereof. To the extent the award agreement does not expressly provide for such disposition, then the disposition of the award shall be determined as set forth in the Amended and Restated Stock and Incentive Plan.
Effect of Change-in-Control
In the event of a change-in-control (as defined in the Amended and Restated Stock and Incentive Plan), to the extent that outstanding awards under the Amended and Restated Stock and Incentive Plan are assumed or replaced with a replacement award, such awards will not vest automatically, but instead will remain outstanding and continue to be governed by their terms. If within two years following a change-in-control, however, a
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2021 Proxy Statement | 27 |
Item 2 First Midwest Bancorp, Inc. Amended and Restated Stock and Incentive Plan
participant is involuntarily terminated other than for cause or voluntarily terminates with good reason, then upon such termination, the awards will become fully vested (so-called “double-trigger” vesting).
If the Compensation Committee determines that existing awards are not appropriately assumed or are not appropriately replaced in connection with a change-in-control, and unless otherwise provided by the Compensation Committee in the agreement applicable to an award, upon a change-in-control, each SAR, stock option and any Other Award then outstanding will become fully vested and exercisable, all restrictions on restricted stock will lapse and all restricted stock units will become fully vested, and any performance-based awards shall be deemed earned and shall be paid to the extent of the greater of:
| ◆ | The extent to which the performance goals applicable to such award have been met during the performance period up through and including the effective date of the change-in-control, or |
| ◆ | A pro-rated amount at the target award level based upon the portion of the performance period elapsed at the time of the change-in-control. |
Other Provisions
In general, no award will be assignable or transferable except by will, and the laws of descent and distribution.
The Compensation Committee may impose such restrictions and limitations on any awards granted under the Amended and Restated Stock and Incentive Plan as it may deem advisable, including, but not limited to, share ownership or holding period requirements and requirements to enter into or to comply with confidentiality, non-competition and other restrictive or similar covenants. Additionally, the Compensation Committee may specify in any award agreement that the participant’s rights, payments and benefits with respect to an award will be subject to reduction, cancellation, forfeiture or recoupment (clawback) upon the occurrence of certain specified events, such as payments based on financial statements or performance metrics that are determined subsequently to be erroneous, in addition to any otherwise applicable vesting or performance conditions.
The Company is subject to supervision and regulation by banking authorities. Regulations and guidance issued by banking authorities may from time-to-time impose certain compensation restrictions on the Company, its executive officers and certain other highly compensated employees. Awards made under the Amended and Restated Stock and Incentive Plan will comply with such compensation restrictions to the extent applicable.
If authorized by the Compensation Committee, the receipt of payment of cash or the delivery of shares that would otherwise be due to a participant under an award may be deferred at the election of the participant or the Company pursuant to an applicable deferral plan established by the Company or a subsidiary. A deferral also may be requested under applicable banking regulations. Awards made and deferral of any amounts payable under the Amended and Restated Stock and Incentive Plan are intended to comply with deferred compensation rules under Section 409A of the Internal Revenue Code.
Effective Date, Amendment and Termination
If approved by our stockholders, the Amended and Restated Stock and Incentive Plan will become effective as of the date of such approval and will remain in effect until all shares subject to the Amended and Restated Stock and Incentive Plan have been issued according to the provisions of the Amended and Restated Stock and Incentive Plan, provided, however, that no awards may be granted on or after the tenth anniversary of the original adoption of the Stock and Incentive Plan. The Board of Directors may terminate the Amended and Restated Stock and Incentive Plan at any time and may amend or modify the Amended and Restated Stock and Incentive Plan from time-to-time, provided that no such action shall materially adversely alter or impair any outstanding award without the consent of the participant(s) affected thereby. In addition, unless approved by our stockholders, no amendment or modification may increase the number of shares of common stock that may be issued under the Amended and Restated Stock and Incentive Plan (except pursuant to an adjustment related to a corporate change affecting our common stock), expand the types of awards available to participants under the Amended and Restated Stock and Incentive Plan, materially expand the class of persons eligible to participate in the Amended and Restated Stock and Incentive Plan, delete or limit the provisions prohibiting the re-pricing of options or reduce
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28 | First Midwest Bancorp, Inc. |
Item 2 First Midwest Bancorp, Inc. Amended and Restated Stock and Incentive Plan
the price at which shares may be offered under options, extend the termination date for making awards under the Amended and Restated Stock and Incentive Plan, or become effective if such amendment or modification is required under the rules the NASDAQ Stock Market or another national exchange on which the common stock is then listed, or other applicable law, rules or regulations, to be approved by stockholders.
The Compensation Committee may amend or modify any outstanding awards in any manner to the extent that the Compensation Committee would have had the authority under the Amended and Restated Stock and Incentive Plan initially to make such award as so amended or modified, provided that no amendment or modification shall materially adversely alter or impair an outstanding award without the consent of the participant affected thereby.
Federal Income Tax Considerations
The following discussion is a summary of certain U.S. federal income tax consequences to participants who may receive grants of awards under the Amended and Restated Stock and Incentive Plan and to the Company. This discussion is not intended to constitute tax advice, does not purport to be complete, and does not cover, among other things, state, local or foreign tax treatment.
Restricted Stock Units and Performance Units
A recipient of restricted stock units and performance units generally will not be subject to tax at the time of grant, but will be subject to tax at ordinary income rates on the fair market value of any common stock issued or cash paid pursuant to such an award upon vesting. The Company generally will be entitled to a deduction equal to the amount of the ordinary income realized by the recipient. The fair market value of the Company’s common stock (if any) received on the delivery date will be a participant’s tax basis for purposes of determining any subsequent gain or loss from the sale of the Company’s common stock. The capital gain or loss holding period for any common stock distributed under an award will begin when the recipient recognizes ordinary income in respect of that distribution.
Stock Awards
A recipient of restricted stock, performance shares or any other award of shares of common stock generally will be subject to tax at ordinary income rates on the fair market value of the common stock at the time the shares have been delivered and are no longer subject to forfeiture. A recipient who so elects under Section 83(b) of the Internal Revenue Code within thirty days of the date of the grant of shares of common stock will have ordinary taxable income on the date of the grant equal to the fair market value of the shares as if the shares were unrestricted or the shares were earned and could be sold immediately. If the shares subject to such election are forfeited, the recipient will not be entitled to any deduction, refund or loss for tax purposes with respect to the forfeited shares. Upon sale of the restricted stock or performance shares after the forfeiture period has expired, the holding period to determine whether the recipient has long-term or short-term capital gain or loss begins when the restriction period expires. If the recipient timely elects to be taxed as of the date of the grant, the holding period commences on the date of the grant and the tax basis will be equal to the fair market value of the shares on the date of the grant as if the shares were then unrestricted and could be sold immediately. The Company generally is entitled to a deduction for compensation paid to a participant in the amount of ordinary income recognized by the participant. In the event that a restricted share award is forfeited by the participant after having made a Section 83(b) election, the Company will include in its income the amount of its original deduction.
Nonqualified Stock Options
For federal income tax purposes, no income is recognized by a participant upon the grant of a nonqualified stock option. Upon exercise, the participant will realize ordinary income in an amount equal to the excess of the fair market value of a share of common stock on the date of exercise over the exercise price multiplied by the number of shares received pursuant to the exercise of such options. A subsequent sale or exchange of such shares will result in gain or loss measured by the difference between (a) the exercise price, increased by any compensation reported upon the participant’s exercise of the option, and (b) the amount realized on such sale or exchange. Any gain or loss will be capital in nature if the shares were held as a capital asset and will be long-term if such shares were held for more than one year.
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2021 Proxy Statement | 29 |
Item 2 First Midwest Bancorp, Inc. Amended and Restated Stock and Incentive Plan
The Company generally is entitled to a deduction for compensation paid to a participant at the same time and in the same amount as the participant realizes compensation upon exercise of the option.
Incentive Stock Options
No taxable income is realized by the participant upon exercise of an incentive stock option granted under the Amended and Restated Stock and Incentive Plan, and if no disposition of those shares is made by such participant within two years after the date of grant and within one year after the transfer of those shares to the participant, then: (a) upon the sale of the shares, any amount realized in excess of the exercise price will be taxed as a long-term capital gain and any loss sustained will be taxed as a long-term capital loss, and (b) no deduction will be allowed to the Company for federal income tax purposes. Upon exercise of an incentive stock option, the participant may be subject to alternative minimum tax on certain items of tax preference.
If the shares of common stock acquired upon the exercise of an incentive stock option are disposed of prior to the expiration of the two-years-from-grant/one-year-from-transfer holding period, generally: (a) the participant will realize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of the shares at exercise (or, if less, the amount realized upon disposition of the shares) over the exercise price, and (b) the Company generally will be entitled to deduct such amount. Any additional gain or loss realized will be taxed as short-term or long-term capital gain or loss, as the case may be, and may not be deducted by the Company. If an incentive stock option is exercised at a time when it no longer qualifies as an incentive stock option, the option will be treated as a nonqualified stock option.
Stock Appreciation Rights
No taxable income is recognized by a participant upon the grant of a SAR under the Amended and Restated Stock and Incentive Plan. Upon the exercise of a SAR, the participant will realize ordinary income in an amount equal to the fair market value of the shares of common stock received and the amount of cash received. The participant’s basis in any shares received will equal the fair market value of such shares on the exercise date. Shares of common stock received upon the exercise of a SAR will, upon subsequent sale, be eligible for capital gains treatment, with the capital gains holding period commencing on the date of exercise of the SAR.
The Company is generally entitled to a deduction for compensation paid to a participant at the same time and in the same amount as the participant realizes ordinary income upon exercise of the SAR.
Other Awards
A participant will recognize ordinary income upon receipt of cash pursuant to a cash award and the Company generally will be entitled to a deduction equal to the amount of the ordinary income realized by the recipient.
Section 409A of the Internal Revenue Code
The terms of the Amended and Restated Stock and Incentive Plan and each award granted thereunder are intended to comply with Section 409A of the Internal Revenue Code, which imposes specific restrictions on nonqualified deferred compensation arrangements, whether by reason of such awards qualifying as short-term deferral or otherwise. Failure to satisfy the applicable requirements under these provisions for awards considered deferred compensation would result in the acceleration of income and additional income tax liability to the recipient, including certain penalties.
Effect of Section 162(m) of the Internal Revenue Code
Section 162(m) of the Internal Revenue Code limits to $1.0 million annually the deductibility of certain compensation received by individuals who serve as our Chief Executive Officer and certain individuals who serve as executive officers. The deduction limit will apply to awards made under the Amended and Restated Stock and Incentive Plan. Accordingly, the Company’s general ability to take deductions for compensation related to awards under the Amended and Restated Stock and Incentive Plan, as described above, may be limited by the application of Section 162(m) of the Internal Revenue Code.
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30 | First Midwest Bancorp, Inc. |
Item 2 First Midwest Bancorp, Inc. Amended and Restated Stock and Incentive Plan
Future Plan Benefits
Awards under the Amended and Restated Stock and Incentive Plan are made at the discretion of the Compensation Committee. Therefore, the benefits and amounts that will be received or allocated under the Amended and Restated Stock and Incentive Plan in the future are not determinable at this time.
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Recommendation of our Board of Directors |
The Board of Directors unanimously recommends that stockholders vote FOR approval of |
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2021 Proxy Statement | 31 |
ITEM 23 APPROVAL OF AN ADVISORY (NON-BINDING) RESOLUTION REGARDING THE COMPENSATION PAID IN 20192020 TO THE COMPANY’S NAMED EXECUTIVE OFFICERS
In accordance with applicable SEC rules, we are required to provide stockholders with an opportunity to approve, on an advisory basis, the compensation of our named executive officers as disclosed in this Proxy Statement. We refer to this proposal as the “say-on-pay” proposal. Our executive compensation programs, including detailed information regarding the compensation paid to our named executive officers for 2019,2020, are described in the Compensation Discussion and Analysis and Executive Compensation Tables sections of this Proxy Statement.
Our Board of Directors views it as a good corporate governance practice to present the say-on-pay proposal to our stockholders annually. The Board made this recommendation to our stockholders at our 20192018 annual meeting, and our stockholders overwhelmingly voted in favor of holding a say-on-pay vote every year, as opposed to every other year or every third year.
At our 20192020 annual meeting of stockholders, 94%97% of the votes cast, (98%excluding abstentions (95% if abstentions are excluded)included) were voted in favor of the compensation paid to our named executive officers. We believe these results confirmed our approach to executive compensation. Our Compensation Committee intends to consider the say-on-pay vote results from this year, and future advisory votes, with respect to the design of and amounts paid under our executive compensation program.
We are asking our stockholders to indicate their support for our executive compensation program as described in this Proxy Statement. This proposal gives our stockholders the opportunity to express their views on our executive compensation. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers described in this Proxy Statement. Accordingly, we will ask our stockholders to vote on the following resolution at the Annual Meeting:
RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to the executive compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, compensation tables and related narrative discussion set forth in the 20202021 annual meeting proxy statement, is hereby approved by the Company’s stockholders on an advisory basis.
The say-on-pay vote is advisory and is therefore not binding on the Company, the Compensation Committee or our Board of Directors. We value the opinions of our stockholders, and the Compensation Committee will consider the results of the vote on our say-on-pay proposal when establishing the design of and amounts paid under our future executive compensation programs.
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Recommendation of our Board of Directors |
The Board of Directors unanimously recommends that stockholders vote FORapproval of |
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| First Midwest Bancorp, Inc. |
ITEM 34 RATIFICATION OF THE APPOINTMENT OF THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Independent Registered Public Accounting Firm
The Audit Committee of the Board of Directors is responsible for appointing the Company’s independent registered public accounting firm, and the Audit Committee has selected Ernst & Young LLP to serve as our independent registered public accounting firm for the year ending December 31, 2020.2021. We are submitting this selection for stockholder ratification at the Annual Meeting. We expect a representative of Ernst & Young LLP to be presentavailable at the Annual Meeting and to have an opportunity to make a statement if he or she desires to do so and to be available to respond to appropriate questions from stockholders. Ernst & Young LLP also served as our independent registered public accounting firm for the year ended December 31, 2019.2020.
Although we are not required to have our stockholders ratify the selection of our independent registered public accounting firm, our Board of Directors has determined to seek this ratification from stockholders. This ratification is advisory and is, therefore, not binding on the Audit Committee. If our stockholders do not ratify the selection, the Audit Committee will reconsider whether to retain Ernst & Young LLP, but may retain them nonetheless. Even if the selection is ratified, the Audit Committee, in its discretion, may change the appointment at any time during the year if it determines that such a change would be in the best interests of the Company.
Fees Paid to Independent Registered Public Accounting Firm
The Audit Committee, or a designated member of the Audit Committee, approves in advance all audit and any non-audit services rendered by Ernst & Young LLP on behalf of the Company. The following table shows information about fees paid by the Company to Ernst & Young LLP for services related to the years indicated below.
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Audit fees(1) |
| $ | 2,001,777 |
| 100 | % | $ | 1,658,979 |
| 100 | % |
| $ | 2,023,245 |
| 100 | % | $ | 2,001,777 |
| 100 | % |
Audit-related fees(2) |
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| 263,200 |
| 100 | % |
| 154,400 |
| 100 | % | | | 298,195 |
| 100 | % | | 263,200 |
| 100 | % |
Tax fees(3) |
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| 174,671 |
| 100 | % |
| 455,715 |
| 100 | % | | | 20,210 | | 100 | % | | 174,671 | | 100 | % |
All other fees |
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| — | % |
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Total fees |
| $ | 2,439,648 |
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| $ | 2,269,094 |
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| $ | 2,341,650 | | |
| $ | 2,439,648 | | | |
| (1) |
| Includes fees and expenses for the audit of the Company’s annual financial statements, internal control over financial reporting and review of financial statements included in the Company’s quarterly reports filed with the SEC, as well as other services normally provided by an independent auditor in connection with statutory and regulatory filings or |
| (2) |
| Includes fees related to the audits of the Company’s benefit plans, comfort letters and filings with the SEC. |
| (3) |
| Includes fees related to assistance with routine tax audits and tax planning, consulting and compliance services. |
Audit fees for 2019 increased primarily dueFees paid to the services provided by Ernst & Young LLP for services in 2020 were less than in 2019 primarily as a result of lower tax and compliance advisory fees, partially offset by increased fees related to the issuance of comfort letters for SEC filings in connection with the Company’s 2019 M&A activity, the pending adoption of the current expected credit losses standard (CECL), and changes in audit scope. Tax fees for 2018 were elevated due to the services provided by Ernst & Young LLP in connection with federal income tax reform.
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Item 3 Ratification of the Appointment of the Company’s Independent Registered Public Accounting Firm
2020 preferred stock issuances.
For audit, audit-related, tax-related and all other services, our Audit Committee has determined specific services and dollar thresholds under which such services would be considered pre-approved. To the extent management requests services other than these pre-approved services, or beyond the dollar thresholds, our Audit Committee must specifically approve the services. Further, under our fee policy, our independent registered public accounting firm may not perform the non-audit services identified by the SEC as prohibited. Our fee policy requires management to provide to our Audit Committee on a quarterly basis a summary of all services performed by the independent registered public accounting firm.
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Recommendation of our Board of Directors |
The Board of Directors unanimously recommends that stockholders vote FOR ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the year ending |
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CORPORATE GOVERNANCE AT FIRST MIDWEST
Our Board of Directors is committed to maintaining strong corporate governance principles and practices.
Our Board of Directors determines annually the independence of all non-employee directors in accordance with the independence requirements of our Corporate Governance Guidelines and the NASDAQ Stock Market rules. Accordingly, each year the Board affirmatively determines whether each non-employee director has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Annually, each non-employee director is required to complete a questionnaire that provides information about relationships that might affect a determination of independence. Management then provides the Nominating and Corporate Governance Committee and the Board of Directors with relevant facts and circumstances of any relationship bearing on the independence of a director or nominee that is outside the categories permitted under the rules of the NASDAQ Stock Market.
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Corporate Governance at First Midwest
Based on the review and recommendation by the Nominating and Corporate Governance Committee, our Board of Directors analyzed the independence of each of the Company’s nominees and other current directors, and determined that all of our directors meet the standards of independence under our Corporate Governance Guidelines and the NASDAQ Stock Market rules, other than Michael L. Scudder, our Chairman and Chief Executive Officer, and Mark G. Sander, our President and Chief Operating Officer, who are not considered to be independent under our Corporate Governance Guidelines and the rules of the NASDAQ Stock Market because they are employees of the Company. In addition, our Board of Directors determined that:
| ◆ |
| Each member of the Audit Committee is financially literate and has accounting or related financial management expertise (as such qualifications are defined under the rules of the NASDAQ Stock Market). |
| ◆ |
| Thomas L. Brown and Stephen C. Van Arsdell are “audit committee financial experts” within the meaning of the rules and regulations of the SEC. |
| ◆ |
| Each member of the Compensation Committee is a “non-employee director” within the meaning of Exchange Act Rule |
Board Leadership and Structure
As provided in our Corporate Governance Guidelines, our Board of Directors does not have a fixed policy regarding the separation of the offices of Chairman and Chief Executive Officer and believes that it should maintain the flexibility to select the Chairman and the Board leadership structure based on what it deems to be in the best interests of the Company and its stockholders. Our Nominating and Corporate Governance Committee annually reviews the composition of the Board and its committees. The Nominating and Corporate Governance Committee also reviews and recommends to the Board the duties and responsibilities of the Chairman and the Lead Independent Director.
Since 2017, Michael L. Scudder has served as our Chairman of the Board and Chief Executive Officer, and J. Stephen Vanderwoude has servedwith an independent member of our Board of Directors serving as our Lead Independent Director. In 2020, Ellen A. Rudnick was appointed to serve as our Lead Independent Director, succeeding J. Stephen Vanderwoude, who served in the position since 2017.
The Board of Directors believes that, at this time, the combination of the offices of Chairman of the Board and Chief Executive Officer and the maintenance of a separate Lead Independent Director role are appropriate for the Company. This leadership structure allows Mr. Scudder to leverage his extensive knowledge of the Company and industry experience into the strategic vision for the management and direction of the Company at both the Board and management level. This further allows him to drive the enhancement of stockholder value, grow and expand the Company’s business and execute the Company’s strategies.
Additionally, the Board believes it is appropriate to have a Lead Independent Director while Mr. Scudder serves as Chairman of the Board in order to provide Board leadership independent from management. The Lead Independent Director is empowered with, and exercises, well-defined duties that enable robust, objective oversight of the Company’sBoard’s affairs and ensure independent challenge of management as appropriate. Mr. VanderwoudeMs. Rudnick has a strong understanding of the Company and its business, as well as significantextensive leadership, corporate governance and public company board experience.
Consistent with Mr. Scudder’s focus on the Company’s strategic vision and direction, in Januarysince 2019, the Board approved the appointment of Mark G. Sander to the position ofhas served as President of the Company in addition to his position as Chief Operating Officer. In this role, Mr. Sander leads significant portions of the day-to-day management of the Company and the Bank.
Our Lead Independent Director must satisfy the independence requirements of the NASDAQ Stock Market and must have served as a director of the Company for least one year. The Lead Independent Director serves in a
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2021 Proxy Statement | 35 |
Corporate Governance at First Midwest
leadership capacity among our independent directors and as an additional resource for the ChairmanChair of the Board in order to continue to foster a strong, highly engaged and high-performing Board of Directors.
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Corporate Governance at First Midwest
The principal duties and responsibilities of the Lead Independent Director are as follows:
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| Act as a liaison on behalf of the independent directors with the |
| ◆ |
| Preside at all meetings of the Board of Directors and stockholders at which the |
| ◆ |
| Consult with the |
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| Have the ability to call meetings of the Board. |
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| Determine, in conjunction with the Board of Directors, the need for, have the ability to call, and preside at meetings of the independent directors and, following each such meeting, promptly communicate to the |
| ◆ |
| Serve as a member of the Advisory Committee of the Board of Directors. |
| ◆ |
| Serve as the acting |
| ◆ |
| Together with the |
| ◆ |
| Consult with the |
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| Perform such other duties and responsibilities as may be assigned to the Lead Independent Director by the |
Risk is inherent in every business and particularly for regulated financial institutions,institutions. We have organized our risk profile and we face several risks, including, for example, credit, market, liquidity, operational, strategic, compliance, legalenterprise risk management framework into the following eight categories: Credit, Market, Liquidity, Operational, Compliance and reputationRegulatory, Legal, Strategic and Reputational risks. We do not view risk in isolation, but rather consider risk as part of our ongoing consideration of business strategy and business decisions. We also are mindful that risk oversight is not about eliminating all risks, but rather identifying, acceptingquantifying and managing or accepting risks at appropriate levels while balancingto achieve customer needs and business objectives in a prudent business considerations, as well as safety and soundness.manner.
We support our risk oversight process through a governance structure involving our Board of Directors and management. Management is responsible for the day-to-day management of the risks the Company faces. ItManagement establishes and maintains risk management processes, policies and tolerance ranges designed to balance our operations and business opportunities with risk mitigation in order to create stockholder value. It is management’s responsibility to anticipate, identify and communicate risks to the Board of Directors and its committees. The Company also has a Chief Risk Officer, who is responsible for the design and implementation of our risk management processes.
We have a Strategic Risk Management Committee composed of members of executive management. The purpose of this committee is to provide a centralized forum to manage key risks that could negatively impact the Company’s operating performance and execution of its business plan. This committee, through our Chief Risk Officer, also reports at least quarterly to the Enterprise Risk Committee of our Board of Directors on significant risk management matters.
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Corporate Governance at First Midwest
The Board of Directors, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, the Board of Directors has the responsibility to satisfy itself that our enterprise risk management framework, policies and profiles designed and implemented by management are appropriate and functioning as contemplated.
The Board performs its risk oversight function primarily through its committees and the operation of the Bank’s board of directors.
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36 | First Midwest Bancorp, Inc. |
Corporate Governance at First Midwest
Management’s risk oversight is primarily administered through our Risk Management Committee, which is composed of members of executive management. The committee’s purpose is to provide a centralized forum to monitor our risk management processes and the alignment of these activities with our risk appetite and business plan. In addition, the Risk Management Committee evaluates and considers emerging risks facing the Company, the financial services industry, and the communities and environments in which we operate.
The Risk Management Committee utilizes a sub-committee structure to frequently monitor and manage key risks within the eight risk categories. These key risks can include additional risk components, such as information security, environmental, credit quality and concentration, asset and liability management and various other risks that could impact the delivery of our services to our customers or our business generally. Cooperation across the Company is essential to adequately address these risks. Each sub-committee is comprised of the key colleagues and executives who manage each risk on a day-to-day basis. The sub-committees analyze and aggregate the various risk metrics to measure alignment with the stated risk objectives and appetites for each of the eight risk categories and report their findings to the Risk Management Committee.
After receiving, discussing and assessing the risk reports presented by the sub-committees and the Risk Management Committee, our Chief Risk Officer, reports at least quarterly to the Enterprise Risk Committee of our Board committeeof Directors on each of our eight risk categories, as well as any other significant risk management matters that arise.
The Enterprise Risk Management Committee of our Board of Directors is primarily involved in assisting the Board of Directors with its oversight of enterprise-wide risk management is the Enterprise Risk Committee.management. Among other responsibilities, this committee approves risk appetites and profiles established by management for key business risks and confirms that business decisions are executed within the established risk tolerances. After receiving, discussing and assessing the risk reports presented by the Chief Risk Officer on behalf of the Risk Management Committee, the Chair of the Enterprise Risk Committee presents a quarterly report to the Board of Directors.
Each of the Board’s standing committees is comprised entirely of independent directors and supports the Board’s oversight functions by regularly addressing various risks in their respective areas of oversight, as follows:
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| Audit Committee. Assists the Board with risk oversight in the areas of financial reporting, internal controls, tax and compliance with certain public reporting requirements. |
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| Compensation Committee. Assists the Board with risk oversight associated with our compensation policies and programs, including maintaining an executive compensation program that is designed to encourage the achievement of corporate objectives and strategies, enhance stockholder value and incent and retain our executive officers, and discourage unnecessary or excessive risk taking. |
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| Enterprise Risk Committee. Assists the Board in its oversight and assessment of management in connection with the |
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| Nominating and Corporate Governance Committee. Assists the Board with risk oversight associated with corporate governance, including the Company’s corporate social responsibility framework and initiatives, Board and Board committee composition, and director and executive succession. |
Each Board committee reports to the full Board of Directors at least quarterly at regular meetings concerning the activities of the committee, the significant matters it has discussed and the actions taken by the committee. The Board also receives reports directly from our Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Chief Risk Officer and General Counsel, as well as other members of management, regarding the Company’s risk management functions. Key members of senior management attend Board and Board committee meetings and are available to address any questions or concerns raised by the Board of Directors.
Information and Cybersecurity Risk Oversight
CybersecurityInformation and cybersecurity risk oversight is a component of operationalour enterprise risk atmanagement framework and is housed within the broader Operational risk profile of the Company. We recognize the importance of maintaining
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2021 Proxy Statement | 37 |
Corporate Governance at First Midwest
the trust of our customers with respect to their confidential financial information and devote significant attention to information and cybersecurity risk. In this regard, we use a variety of techniques that are intended to secure our operationscontrols and confidential information, consult with third-party security advisors and maintain cyber insurance.protections.
Our Board of Directors oversees the management of information and cybersecurity risk. Senior management is responsible for the day-to-day management of information and cybersecurity risk and the design and implementation of policies, processes and procedures to addressidentify and mitigate thisinformation and cybersecurity risk. The Board and ourOur Enterprise Risk Committee and our Board receive periodicquarterly reports from and engage in discussions with senior management on the effectiveness of our information and cybersecurity program and review our inherent risks, the plans and programs designed to address these risks and our progress in doing so. Our cybersecurity response plan is a component of a broader crisis management plan, which outlines our approach for the urgent management, communication, and successful resolution of any known or suspected unauthorized access to customer information. Our response plan includes a reporting procedure for notifying the appropriate Federal and State regulators, filing timely suspicious activity reports in accordance with regulations, contacting law enforcement officials and notifying clients as needed. Our colleagues also complete privacy and information awareness training on at least an annual basis, with certain executives completing additional targeted awareness courses based on their privileged administrator access to our systems.
External parties, including cybersecurity firms, penetration testers and banking regulators, annually assess our information and cybersecurity program. We use the findings to analyze the effectiveness of our program and to identify opportunities to address and remedy any residual risks. In addition, we maintain robust cyber insurance and participate in financial industry cybersecurity and threat intelligence organizations to monitor and assess trends within the financial services industry.
Our Board of Directors holds regular quarterly meetings and special meetings as needed. In 2019,2020, the Board held four regularly scheduled meetings, and our independent directors met separately without management present following each regular meeting. In light of the COVID-19 pandemic, the Board also met six additional times during the year. Our directors also communicate with each other between meetings. Further, the Board of Directors devotes additional time outside of its regular meetings to discussions with our Chief Executive Officer and members of executive management about the Company’s long-term strategy, corporate objectives and initiatives and industry and market updates, which are then discussed further at the Board’s quarterly meetings.
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|
Corporate Governance at First Midwest
We expect our directors to attend all Board and committee meetings for those committees on which they serve. Directors are also expected to attend each annual meeting of stockholders. All of our directors attended last year’s annual meeting, and 11each of our 12 directors attended 100% of the total number of meetings of the Board and committees on which he or she served during 2019, with the remaining director attending all but one meeting.2020.
Our Board of Directors has four standing committees: our Audit Committee, Compensation Committee, Enterprise Risk Committee and Nominating and Corporate Governance Committee. Each standing committee has a written charter that each committee and the Board of Directors reviewsreview annually. Our Board has determined that each of the members of our standing committees is independent under the provisions of our Corporate Governance Guidelines and the rules of the NASDAQ Stock Market. The Board of Directors has also established an Advisory Committee for the purpose of providing advice to management with respect to business matters as needed between regular meetings of the Board and undertaking such other duties and responsibilities as may be delegated to this committee by the Board.
Under our Corporate Governance Guidelines, the members of each Board committee (including each committee chair) are appointed by the Board upon the recommendation of the Nominating and Corporate Governance Committee, and a member may only serve as the chair of one committee of the Board at any given time.
Below is a brief description, including membership and meeting information for 2019,2020, of each standing committee of our Board of Directors, as well as our Advisory Committee. Each standing committee has the authority to engage, at the Company’s expense, legal counsel or other advisors or consultants as it deems appropriate to carry
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38 | First Midwest Bancorp, Inc. |
Corporate Governance at First Midwest
out its responsibilities. The charter of each standing committee describes the specific responsibilities and functions of the committee. Copies of our Audit Committee, Compensation Committee, Enterprise Risk Committee and Nominating and Corporate Governance Committee charters are available by visiting our website at www.firstmidwest.com/corporategovernancehttps://investor.firstmidwest.com/corporate-information/documents/.
Audit Committee
| | |
|
|
Corporate Governance at First Midwest
Audit Committee
| # of | |
Committee Members | Primary Responsibilities |
|
|
| in |
Stephen C. Van Arsdell (Chair) | ◆ Appoint our independent registered public accounting firm and pre-approve all services performed by this firm. ◆ Oversee the external financial reporting process and the adequacy of the Company’s internal controls over financial reporting. ◆ Oversee the appointment of the audit services director, who is responsible for the Company’s internal audit function. ◆ Oversee the scope of the audit activities of the independent registered public accounting firm and the Company’s internal auditors. ◆ Oversee the process for determining the independence of the independent registered public accounting firm. ◆ Oversee the procedures for the receipt, retention and resolution of complaints regarding accounting, internal control or auditing matters. ◆ Discuss with management and the independent registered public accounting firm the critical accounting policies and practices used by the Company, any off-balance sheet items and significant judgments made in connection with the preparation of the Company’s financial statements. ◆ Discuss with management and the independent registered public accounting firm certain reports filed with the SEC. ◆ Discuss with management the Company’s policies and procedures relating to compliance with applicable laws and regulations pertaining to financial reporting and disclosure. | 8 |
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2021 Proxy Statement | 39 |
Corporate Governance at First Midwest
Compensation Committee
| | |
| | # of |
Committee Members | Primary Responsibilities | in |
Barbara A. Boigegrain (Chair) Michael J. Small | ◆ Review and approve our executive compensation philosophy. ◆ Oversee the development and implementation of our compensation policies and programs. ◆ Review and monitor our incentive and other compensation programs. ◆ Recommend to our Board of Directors goals and objectives relating to the compensation of our Chief Executive Officer. ◆ Assist our Board of Directors in evaluating the performance of our Chief Executive Officer and recommend to our Board the Chief Executive Officer’s compensation. ◆ Review and recommend to our Board of Directors the annual compensation of ◆ Approve the Company’s peer group used for comparative compensation purposes. ◆ Review and recommend to our Board of Directors the annual compensation of our directors. ◆ Administer our ◆ Discuss with management the Company’s health and welfare programs. ◆ Appoint the plan administrators for the Company’s retirement plans and the members of the Company’s retirement and benefit plans ◆ Conduct an annual risk assessment of our compensation programs. ◆ Retain an independent compensation consultant to provide advice to the Compensation Committee relative to compensation matters. |
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Corporate Governance at First Midwest
Enterprise Risk Committee
| | |
| | # of |
Committee Members | Primary Responsibilities | in |
J. Stephen Vanderwoude | ◆ Review and approve policies establishing risk management governance, risk appetite, risk management procedures and risk control infrastructure for the Company’s enterprise-wide operations. ◆ Approve our enterprise risk management framework and oversee management’s ◆ Approve the Company’s risk appetite statement. ◆ Review reports from management to evaluate the Company’s assessment and management of enterprise-wide risks identified through the enterprise risk management program. ◆ Review reports from management relating to its assessment and monitoring of credit, market, liquidity, operational, ◆ Review and recommend to the Board for approval annually the Company’s capital management policy. ◆ Review and recommend to the Board for approval annually the Company’s capital plan and monitor management’s adherence to the plan. |
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* In 2020, our Enterprise Risk Committee met three times instead of four because, in light of the pandemic and the significance of the risks related thereto, the Committee conducted at a full Board meeting the business that it would have conducted at one of its meetings.
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40 | First Midwest Bancorp, Inc. |
Corporate Governance at First Midwest
Nominating and Corporate Governance Committee
| | # of |
Committee Members | Primary Responsibilities | in |
Ellen A. Rudnick (Chair) | ◆ Recommend to the Board of Directors the director nominees for election at any meeting of stockholders at which directors are elected. ◆ Identify, interview and recruit individuals to serve as members of our Board of Directors. ◆ Oversee matters of corporate governance, including review of the Company’s Corporate Governance Guidelines, Code of Ethics and Standards of Business Conduct and stock ownership guidelines. ◆ Advise the Board of Directors on Board and committee organization, membership, function, performance and effectiveness. ◆ Recommend to the Board of Directors the appointment of a director to serve as the ◆ Review director independence standards and qualifications and make recommendations to the Board of Directors with respect to the determination of the independence and qualifications of directors. ◆ Assist and advise regarding executive management succession. ◆ Approve, subject to stockholder approval where required, amendments to the Company’s Certificate of Incorporation, By-Laws and Corporate Governance Guidelines. ◆ ◆ Assist the ◆ Review related person transactions, if and when they arise. ◆ Oversee the annual self-evaluation process of the Board of Directors and each of its committees. | 4 |
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Corporate Governance at First Midwest
Advisory Committee
| | |
| | # of |
Committee Members | Primary Responsibilities | in |
Michael L. Scudder (Chair) Thomas L. Brown Ellen A. Rudnick | ◆ Advise and consult with management with respect to business matters as needed between regular meetings of the Board of Directors. ◆ Undertake such other duties and responsibilities as may be delegated to this committee by the Board of Directors. |
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Board and Committee Self-Evaluations
The Board of Directors and the Audit, Compensation, Enterprise Risk and Nominating and Corporate Governance Committees conduct an annual self-evaluation, which includes both a qualitative and quantitative assessment by each director of the performance of the Board and the committees on which the director sits. The Nominating and Corporate Governance Committee oversees these evaluations. As part of this process, each director completes an annual self-evaluation of the Board and the committees on which the director sits and has an individual meeting with the Chair of the Nominating and Corporate Governance Committee. The results of the self-evaluations are reported to the Board of Directors.
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2021 Proxy Statement | 41 |
Corporate Governance at First Midwest
The Chairman of the Board oversees director education at the Company, with the input of the Nominating and Corporate Governance Committee. Director education occurs for the full Board and for each of the Board’s committees. Our education program involves quarterly in-person presentations (which, in 2020, were conducted virtually) on relevant topics by management, outside advisors or industry experts, attendance at national and local conferences and meetings (sponsored by federal bank regulatory agencies, the National Association of Corporate Directors and others), access to board and governance related portals maintained by outside advisors or industry experts and subscriptions to pertinent periodicals and other materials.
We maintain a written policy for reviewing, approving and monitoring transactions involving the Company and related persons (generally, directors and executive officers or their immediate family members, or stockholders owning 5% or more of our Common Stock)common stock).
Our Nominating and Corporate Governance Committee is responsible for reviewing and approving (or ratifying) all transactions with related persons. The Nominating and Corporate Governance Committee will consider all relevant factors in its analysis, including whether the transaction is on an arm’s length basis with terms comparable to those available to third parties. The Nominating and Corporate Governance Committee will also determine whether any transaction with a related person impairs the independence of a director or presents a conflict of interest on the part of a director or executive officer. The Chair of the Nominating and Corporate Governance Committee may pre-approve or ratify any transaction with a related person involving an amount up to $1,000,000. The policy also provides that transactions involving competitive bids, the rendering of services by a regulated entity and certain ordinary course banking transactions, including loans made by First Midwest Bank, will be deemed to be pre-approved by the Nominating and Corporate Governance Committee.
From time to time, First Midwest Bank engages in transactions with some of our executive officers, directors and entities with which they are associated. These transactions involve loans extended in accordance with Regulation O of the Federal Reserve and other banking services, all of which are in the ordinary course of business and on substantially the same terms, including current interest rates and collateral, as those prevailing at the time for comparable transactions with others not related to the Company and do not involve more than the normal risk of collectability or present other unfavorable features.
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Corporate Governance at First Midwest
Compensation Committee Interlocks and Insider Participation
No member of our Compensation Committee has served as one of our executive officers or employees. None of our executive officers serves as a member of the board of directors or compensation committee of any other company that has an executive officer serving on our Board of Directors or our Compensation Committee.
In 2019,2020, we initiated acontinued our stockholder engagement program in order to promote an open dialogue between the Company and our largest stockholders. Through this program, we engaged with several of our institutional stockholders owning in the aggregate over 20% of our outstanding Common Stock.common stock. The meetings with our stockholders included discussion of our business strategy, the composition and qualifications of our Board of Directors, corporate governance practices, executive compensation, and corporate social responsibility activities and diversity, equity and inclusion initiatives, among other topics. We value the input and perspectives that we received during these discussions and will carefully consider stockholder feedback as we review our corporate practices. We plan to continue our engagement program to further open and constructive dialogue with our stockholders.
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42 | First Midwest Bancorp, Inc. |
Corporate Governance at First Midwest
Stockholder Communication with Directors
Stockholders may contact the Chairman of the Board, the Lead Independent Director, an individual director, the entire Board of Directors, our independent directors as a group or a specific Board committee by submitting written correspondence to First Midwest Bancorp, Inc., Attn: Corporate Secretary, 8750 West Bryn Mawr Avenue, Suite 1300, Chicago, Illinois 60631. Each communication should specify the applicable addressee(s) to be contacted as well as the general topic of the communication. The Company will initially receive and process communications before forwarding them to the addressee(s). Communications also may be referred to other departments within the Company. The Company generally will not forward to the directors a communication that involves routine business matters of the Company or First Midwest Bank, an irrelevant topic or a request for general information about the Company. Communications regarding accounting or auditing matters should be made in writing and addressed to the Board’s Audit Committee Chair or the Company’s Audit Services Director, atc/o Corporate Secretary, First Midwest Bancorp, Inc., 8750 West Bryn Mawr Avenue, Suite 1300, Chicago, Illinois 60631.
We have adopted a comprehensive whistleblower policy in furtherance of our commitment to conduct our affairs in compliance with all applicable securities laws and regulations, accounting standards, accounting controls and audit practices. The whistleblower policy establishes procedures for the receipt, retention and treatment of complaints regarding accounting, internal control or auditing matters. The whistleblower policy also provides a process for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. Our Audit Committee oversees the administration of the whistleblower policy and determines the application of corrective action as appropriate.
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INFORMATION REGARDING BENEFICIAL OWNERSHIP OF PRINCIPAL STOCKHOLDERS, DIRECTORS AND MANAGEMENT
The following table sets forth, as of March 27, 2020,26, 2021, the Record Date, information about the beneficial ownership of our Common Stockcommon stock and our depositary shares (each representing a 1/40th interest in a share of our Series C preferred stock) by all directors, our named executive officers and our directors and all executive officers as a group. Except as described below, each stockholder has sole voting and investment power for all shares shown. Unless otherwise indicated, the address of each beneficial owner is c/o First Midwest Bancorp, Inc., 8750 West Bryn Mawr Avenue, Suite 1300, Chicago, Illinois 60631.
WeFor our common stock, we calculated the percent of class based on 114,327,151114,334,259 shares of Common Stockcommon stock outstanding on March 27, 2020.26, 2021. We include shares of restricted stock subject to future vesting conditions for which an individual has voting but not dispositive power. We also include shares underlying restricted stock units and performance shares that could vest within 60 days of March 27, 2020,26, 2021, even though an individual has neither voting nor dispositive power. Those shares are deemed to be outstanding and beneficially owned by the person holding such securities for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. For our depositary shares (each representing a 1/40th interest in a share of our Series C preferred stock), we calculated the percent of class based on 4,900,000 depositary shares outstanding as of March 26, 2021.
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| Number of |
| Percent of |
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| | Number of Depositary | | Percent of | | Number of Common | | Percent of | | |||||
Beneficial Owner |
| Shares/Units(1)(2)(3) |
| Class |
|
| Shares |
| Class |
| Shares/Units(1)(2)(3) |
| Class | |
Directors |
|
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|
| | | | | | | | | |
Barbara A. Boigegrain |
| 37,896 |
| * |
| | — | | — | | 43,496 | | * | |
Thomas L. Brown |
| 15,676 |
| * |
| | — | | — | | 25,722 | | * | |
Phupinder S. Gill |
| 57,867 |
| * |
| | 4,000 | | * | | 68,237 | | * | |
Kathryn J. Hayley |
| 23,000 |
| * |
| | 12,000 | | * | | 23,000 | | * | |
Peter J. Henseler |
| 27,315 |
| * |
| | 4,000 | | * | | 31,492 | | * | |
Frank B. Modruson |
| 10,171 |
| * |
| | — | | — | | 21,523 | | * | |
Ellen A. Rudnick |
| 35,758 |
| * |
| | 3,000 | | * | | 39,853 | | * | |
Mark G. Sander |
| 224,511 |
| * |
| | 3,000 | | * | | 229,169 | | * | |
Michael L. Scudder |
| 319,495 |
| * |
| | 4,000 | | * | | 362,051 | | * | |
Michael J. Small |
| 29,851 |
| * |
| | — | | — | | 31,851 | | * | |
Stephen C. Van Arsdell |
| 24,444 |
| * |
| | 2,000 | | * | | 28,633 | | * | |
J. Stephen Vanderwoude |
| 33,654 |
| * |
| | 1,000 | | * | | 34,542 | | * | |
Named Executive Officers (other than Messrs. Sander and Scudder) |
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Patrick S. Barrett |
| 73,831 |
| * |
| | — | | — | | 71,763 | | * | |
Michael W. Jamieson |
| 31,669 |
| * |
| | 4,000 | | * | | 30,590 | | * | |
Thomas M. Prame |
| 60,759 |
| * |
| | — | | — | | 91,205 | | * | |
All directors and executive officers (including named executive officers) as a group (23 persons) (4) |
| 1,243,326 |
| 1.1 | % | | 38,400 | | 0.78% | | 1,416,786 | | 1.24% | |
*Less than 1%.
* |
|
| (1) | Some of our directors and officers have deferred cash compensation (in the form of phantom |
| (2) |
| Includes the following shares of |
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44 | First Midwest Bancorp, Inc. |
Information Regarding Beneficial Ownership of Principal Stockholders, Directors and Management
| (3) |
| Includes the following shares of restricted stock subject to future vesting conditions for which the individual has voting but not dispositive power: Mr. Scudder, |
| (4) | |
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Information Regarding Beneficial Ownership of Principal Stockholders, Directors and Management
| Includes: |
Other Security Ownership
The following table identifies each person known to us as of March 27, 202026, 2021 to beneficially own more than 5% of our outstanding Common Stock.common stock.
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| of Shares |
| of Class |
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| of Shares |
| of Class | |
BlackRock, Inc.(1) |
| 15,235,535 |
| 13.9 | % |
| 16,666,519 |
| 14.6 | % |
55 East 52nd Street |
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New York, New York 10055 |
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The Vanguard Group(2) |
| 11,689,472 |
| 10.6 | % |
| 12,437,517 |
| 10.9 | % |
100 Vanguard Boulevard |
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Malvern, Pennsylvania 19355 |
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Dimensional Fund Advisors LP(3) |
| 7,308,940 |
| 6.7 | % | |||||
Fuller & Thaler Asset Management, Inc.(3) |
| 8,162,409 |
| 7.1 | % | |||||
411 Borel Avenue | | | | | | |||||
Suite 300 | | | | | | |||||
San Mateo, California 94402 | | | | | | |||||
Dimensional Fund Advisors LP(4) |
| 7,404,159 |
| 6.5 | % | |||||
6300 Bee Cave Road | | | | | | |||||
Building One |
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6300 Bee Cave Road |
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Austin, Texas 78746 |
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Wellington Management Group LLP(4) |
| 6,038,354 |
| 5.5 | % | |||||
c/o Wellington Management Company LLP |
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280 Congress Street |
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Boston, Massachusetts 02210 |
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| (1) |
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| (2) | This information is based solely on a Schedule 13G/A filed with the SEC on February |
| (3) | This information is based solely on a Schedule 13G filed with the SEC on February 11, 2021 by Fuller & Thaler Asset Management, Inc., which reported sole voting power as to |
| (4) |
| This information is based solely on a Schedule 13G/A filed with the SEC on February 12, |
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2021 Proxy Statement |
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We use a combination of cash and equity-based compensation set at levels we believe will allow us to attract and retain qualified individuals to serve on our Board of Directors. Each year, the Compensation Committee reviews, with the assistance of our independent compensation consultant, and makes a recommendation to our Board of Directors regarding the compensation that we pay to our directors. In setting director compensation, we consider the significant amount of time that directors devote to fulfilling their duties, advice that we receive from our compensation consultant and comparative data regarding director compensation at the companies in our peer group as well as other public companies in the Midwest, which is the area where we primarily compete for director candidates.
For 2019,2020, the Compensation Committee recommended to our Board of Directors, and the Board subsequently approved, that both the annual fixed cash retainer and the annual award of Common Stockcommon stock paid to each non-employee director should be increased from $52,500 toremain at $55,000, for a total of $110,000. The awards of Common Stockcommon stock are granted as fully-vested shares of Common Stock,common stock, and our directors may elect to receive the stock component of their director compensation in cash.
Michael L. Scudder, our Chairman and Chief Executive Officer, and Mark G. Sander, our President and Chief Operating Officer, do not receive compensation for serving as a member of the Board. In addition, Br. James Gaffney, who retired as a director in 2019, elected not to receive any director compensation for his service on the Board.
The following table summarizes our annual compensation for non-employee directors for 2019:2020:
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| Amount | ||
An annual fixed cash retainer for each non-employee director |
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| $ | 55,000 | |
| $ | 55,000 |
An annual award of Common Stock for each non-employee director(1) |
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| $ | 55,000 | ||||
An annual award of common stock for each non-employee director(1) | |
| $ | 55,000 | ||||
An annual fixed cash retainer for the Lead Independent Director |
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| $ | 25,000 | |
| $ | 25,000 |
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| Chair Cash Retainer |
| Member Cash Retainer | | Chair Cash Retainer |
| Member Cash Retainer |
Audit | $ | 15,000 | $ | 7,500 | $ | 15,000 | $ | 7,500 |
Compensation | $ | 15,000 | $ | 6,000 | $ | 15,000 | $ | 6,000 |
Enterprise Risk | $ | 15,000 | $ | 5,000 | $ | 15,000 | $ | 5,000 |
Nominating and Corporate Governance | $ | 10,000 | $ | 2,500 | $ | 10,000 | $ | 2,500 |
| (1) |
| A director may elect to receive the stock component of his or her director compensation in cash. |
Each director’s annual cash retainer and Common Stockcommon stock award are paid in equal quarterly installments in arrears. Payment of each retainer installment is contingent upon the director’s service during the preceding quarter. We do not pay separate fees for attendance at Board or Board committee meetings. We also reimburse our directors for their reasonable Board and committee attendance-related expenses.
Barbara A. Boigegrain, Phupinder S. Gill, Peter J. Henseler, Frank B. Modruson and Ellen A. Rudnick each received an award of 2,643 4,095 shares of fully-vested Common Stockcommon stock for their 20192020 service as the stock component of their director compensation. Thomas L. Brown, Kathryn J. Hayley, Michael J. Small, Stephen C. Van Arsdell and J. Stephen Vanderwoude each elected to receive cash in lieu of shares of fully-vested Common Stockcommon stock for 2019,2020, with certain of these directors deferring cash compensation into our Deferred Compensation Plan and using plan balances to purchase shares of Common Stock. common stock.
Deferred Compensation Plan for Non-Employee Directors
Our Deferred Compensation Plan allows non-employee directors to defer receipt of either 50% or 100% of their director fees and retainers. Deferral elections are made in December of each year for amounts payable in the following year. Amounts are deemed to be invested in separate investment accounts under the plan, with the various investment alternatives available under our Deferred Compensation Plan, including an investment account for shares of our Common Stock.common stock.
| |
| First Midwest Bancorp, Inc. |
Director Compensation
Deferred director fees and retainers are payable at the director’s election, either as a lump sum or in installments over a period not to exceed fifteen years. Payments under the Deferred Compensation Plan begin at the date specified by the director or upon cessation of service as a director.
20192020 Director Compensation Table
The following table and explanatory notes provide information regarding the cash and Common Stockcommon stock awarded to each non-employee director during 2019.2020.
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Name |
| Cash(1) |
| Awards(2) |
| Awards |
| Compensation(3) |
| Earnings |
| Compensation(4) |
| Total |
| Cash(1) |
| Awards(2) |
| Compensation(3) |
| Total | |||||||||||
Barbara A. Boigegrain |
| $ | 72,500 |
| $ | 55,000 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 127,500 |
| $ | 72,500 |
| $ | 55,000 |
| $ | 2,000 |
| $ | 129,500 |
Thomas L. Brown |
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| 122,500 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 122,500 | |
| 128,626 | |
| — | |
| — | |
| 128,626 |
Br. James Gaffney(5)(6) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — | ||||||||||||
Phupinder S. Gill |
|
| 67,500 |
|
| 55,000 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 122,500 | |
| 67,500 | |
| 55,000 | |
| — | |
| 122,500 |
Kathryn J. Hayley |
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| 123,500 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 123,500 | |
| 123,500 | |
| — | |
| 2,500 | |
| 126,000 |
Peter J. Henseler |
|
| 63,500 |
|
| 55,000 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 118,500 | |
| 63,500 | |
| 55,000 | |
| — | |
| 118,500 |
Frank B. Modruson |
|
| 67,500 |
|
| 55,000 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 122,500 | |
| 67,500 | |
| 55,000 | |
| 2,500 | |
| 125,000 |
Ellen A. Rudnick(6) |
|
| 67,875 |
|
| 55,000 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 122,875 | ||||||||||||
Ellen A. Rudnick | |
| 86,316 | |
| 55,000 | |
| 2,500 | |
| 143,816 | |||||||||||||||||||||
Michael J. Small |
|
| 122,500 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 122,500 | |
| 121,581 | |
| — | |
| — | |
| 121,581 |
Stephen C. Van Arsdell |
|
| 127,500 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 2,500 |
|
| 130,000 | |
| 127,500 | |
| — | |
| 2,500 | |
| 130,000 |
J. Stephen Vanderwoude |
|
| 152,500 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 152,500 | |
| 131,058 | |
| — | |
| — | |
| 131,058 |
| (1) |
| Includes pro-rated amounts for partial service during the year for certain Committee positions and amounts deferred at the election of the directors pursuant to our Deferred Compensation Plan. Mr. Brown and Mr. Gill elected to defer all cash compensation and Mr. Van Arsdell deferred half of his cash compensation into our Deferred Compensation Plan, which allows for investment into additional shares of our common stock. |
| (2) |
| Amounts represent the aggregate grant-date fair value of |
| (3) |
| Represents amounts paid under our matching gift donation program to eligible organizations designated by the director. The Company does not maintain a non-equity incentive plan or pension plan for directors. |
|
|
|
|
|
|
2020
2021 Director Compensation
Consistent with its annual review of our director compensation program, the Compensation Committee reviewed the amount of compensation paid to our directors. In connection with its review of our director compensation program, the Compensation Committee held discussions with its independent compensation consultant. At the time of these discussions, the Compensation Committee was considering for approval a proposed new peer group, which was later approved and became the 2020 peer group identified inCompensation Discussion and Analysis—Our Executive Compensation Philosophy—2020 Peer Group. The Committee considered director compensation data from the companies in the 2020our peer group and other public companies in the Midwest, as well as other information. In setting director fees, the Committee desires to compensate our directors at approximately the median compensation level for directors in the 2020our peer group and to continue to attract and retain qualified directors.
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Director Compensation
Upon the conclusion of this process, the Compensation Committee recommended to our Board of Directors that for 2020,2021, compensation for our directors, Lead Independent Director, committee chairs and committee members would remain at the same levels as in 2019.2020. Our Board of Directors concurred with the Compensation Committee’s recommendation not to increase director compensation for 2020.2021. Director, Lead Independent Director, committee chair and committee member compensation was at approximately the median compensation level for similar positions at companies in our 2020 peer group.
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2021 Proxy Statement | 47 |
Director Compensation
Director Stock Ownership Guidelines
We believe that each director should have a meaningful equity investment in our Company. Our director stock ownership guidelines provide that directors are expected to own Common Stockcommon stock equal in value to 3x the total annual base compensation for non-employee directors, or $330,000. This amount is the equivalent of 6x the base annual cash retainer paid to our non-employee directors. Directors are expected to acquire and maintain this level of share ownership threshold within five years of joining the Board of Directors. Based on the closing price of our Common Stock on February 24, 2020, allAll of our directors have satisfied our stock ownership guidelines with the exception of one of our newer directors who is still accumulating stock within the timeframe allowed under the guidelines.
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| First Midwest Bancorp, Inc. |
COMPENSATION DISCUSSION AND ANALYSIS
The following Compensation Discussion and Analysis describes our executive compensation philosophy and program as established by our Compensation Committee. Below is a roadmap to our Compensation Discussion and Analysis.
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2021 Proxy Statement | 49 |
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Compensation Discussion and Analysis
This Compensation Discussion and Analysis provides information and perspective regarding our 20192020 executive compensation program and decisions for our executive officers generally and, more specifically, for our named executive officers identified below:
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Name |
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Michael L. Scudder | | Chairman and Chief Executive Officer of the Company and First Midwest Bank |
Mark G. Sander | | President and Chief Operating Officer of the Company and Vice Chairman, President and Chief Operating Officer of First Midwest Bank |
Patrick S. Barrett | | Executive Vice President and Chief Financial Officer of the Company and First Midwest Bank |
Michael W. Jamieson | | Executive Vice President and Director of Commercial Banking of First Midwest Bank |
Thomas M. Prame | | Executive Vice President and Director of Consumer Banking of First Midwest Bank |
We seek to align the interests of our executives with the interests of our stockholders. As such, we believe it is important to incent and reward our executives for corporate and individual performance, with a clear emphasis on corporate performance. We maintain a pay-for-performancepay for performance environment with an executive compensation program having both short-term and long-term awards, including significant equity and cash components that are performance-based or tied to the value of our Common Stock.common stock.
Our executive compensation program is designed to accomplish the following goals:
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| Encourage the achievement of short- and long-term corporate financial objectives that create value for our stockholders. |
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| Align the interests of our executives with our stockholders. |
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| Attract and retain high-performing executives. |
Our Compensation Committee also annually reviews, and discusses with its independent compensation consultant, the risks and rewards associated with each element of our executive compensation program to assure that the program does not encourage our executive officers to take excessive risks to enhance their compensation.
This Compensation Discussion and Analysis contains references to certain financial information on an adjusted basis. This information, as adjusted, excludes certain items, such as acquisition and integration related expenses. For a more detailed discussion of the financial information we present on an adjusted basis, please see the section of this Proxy Statement entitledProxy Summary—Certain Financial Information Presented on an Adjusted Basis.
Consistent with our longstanding compensation practices, cash and equity awards that are performance-based and equity awards that are tied to the value of our Common Stock in 2019 constituted a significant portion of the compensation of our named executive officers. In 2019, over 75% of the total direct compensation (base salary, annual cash incentive and long-term stock incentive) paid to our Chief Executive Officer and nearly 70% of the total direct compensation paid to our President was at risk, through compensation that either is performance-based or tied to the value of our Common Stock. This compensation mix places a greater emphasis on performance-based awards, which are only fully realized if the short- and long-term goals of the Company are achieved. We continued our emphasis on performance-based awards in 2020, including having a significant portion of our CEO’s and our President’s compensation tied to corporate performance.
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Compensation Discussion and Analysis
Our short-term and long-term performance goals are selected in furtherance of strategic and operating objectives that we believe will create long-term value for our stockholders and require the Company to achieve performance at our Board-approved budget in order for our executives to receive target payout levels. Additionally, our net income, adjusted, goal under our annual cash incentive program must be achieved at least at the threshold level for any payout to be awarded under this program.
Our performance-based compensation programs are designed to be rigorous, as evidenced by the payouts under our annual cash incentive program and performance share program over the last three years reflected below. We do not believe that our performance goals under our annual cash incentive or our performance share programs encourage our executive officers to take undue risks or imprudent actions in order to achieve these goals.
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| Payout as a Percentage of Target |
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Program |
| 2017 |
| 2018 |
| 2019 |
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Annual Cash Incentive Compensation |
| 98% |
| 100% |
| 107% | * | |
Performance Shares |
| 97% |
| 92% |
| 100% |
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*Reflects core corporate performance only and not the impact of line of business contributions,goals, which were added towas confirmed through our annual cash incentive program for certain NEOs forcompensation risk assessment performed under the first time in 2019. The line of business contribution component is discussed more fully below under2019 Compensation Program—Annual Cash Incentive Compensation.
Oneauspices of our strategic priorities is strategic expansion, and our Compensation Committee reviews Company performance results relative to the net income, adjusted, goal under our annual cash incentive program both with and without the impact of acquisition activity during the year. The Committee then applies its judgment to best reflect corporate performance when making payout determinations in any given year.Chief Risk Officer.
For our 2019 annual cash incentive program, our Compensation Committee decided to exclude a majority of the 2019 financial contribution of the Bridgeview Bank acquisition, which was completed in the second quarter, from the calculation of the net income, adjusted, performance goal. This resulted in a reduced payout of 107% of the target award level, excluding line of business contributions. The reason for this approach was that the financial contribution of our Bridgeview Bank acquisition had not been included in this performance goal because the impact of the Bridgeview Bank acquisition on our 2019 results was not quantifiable at the time the goal was established, as the closing date for the transaction was not then known. This is discussed more fully below under2019 Compensation Program—Annual Cash Incentive Compensation.
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Compensation Discussion and Analysis
Compensation Program Performance Metrics
Our compensation program is designedcontains references to encouragecertain financial information on a core or adjusted basis. This information excludes certain items, such as acquisition and integration expenses, securities gains and losses, and balance sheet and retail optimization costs. For a more detailed discussion of the achievementfinancial information we present on a core or adjusted basis, please see the section of goals that further our corporate strategy and create value for our stockholders. We select several metrics, establish a performance goal for each metric and then measure the extent to which we achieve these goals. The charts below illustrate our achievements in 2019 for net income and return on average tangible common equity (RATCE), both as adjusted. These two metrics constitute important components in the design of our compensation program, and the impact of these results on our program are discussed in more detail later in this Proxy Compensation Discussion and Analysis.
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In addition to our 2019 achievements noted above underStatement entitledAbout First Midwest , we created long-term stockholder value over the last five years. Below is our one-, three- and five-year total stockholder return as compared to our 2019 peer group and the ^KRX Index. The Company is included in this index.
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Compensation Discussion and Analysis
2019 was a successful year for the Company, as we continued our growth, achieved record earnings and remained focused on continued improvement in our operating efficiency. Our Compensation Committee reviewed target compensation for our Chief Executive Officer in the first quarter of 2019 and set target opportunities for the year. BasedProxy Summary—Certain Financial Information Presented on an assessment of our CEO’s performance and continued importance in leading the Company, as well as an analysis of CEO compensation across our peer group, including the desire to set compensation at approximately the median of the peer group, the Committee made the following decisions relating to CEO compensation for 2019:
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These actions increased the emphasis on performance-based compensation, linked 75% of our CEO’s pay to performance-based awards and positioned his target total direct compensation at approximately the median of our peer group. Adjusted Basis.
Based on Company-wide performance under our annual cash incentive program, our CEO earned an award equal to 107% of target for 2019.
The performance share award for the 2017-2019 performance period was earned at 100% of target based on our three-year return on average tangible common equity (RATCE), adjusted, and relative total stockholder return (TSR) performance.
2020 Compensation Program Updates
For 2020, our Compensation Committee approved certain updates to our compensation program, as follows:
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Compensation Discussion and Analysis
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Stockholder Say-on-Pay Vote in 201209 20
Our Compensation Committee reviews the annual advisory vote by our stockholders on executive compensation when designing our executive compensation program and setting executive compensation levels. With respect to compensation decisions in 20192020 (and in 2020)2021), the Compensation Committee considered the say-on-pay approval of 94% (98%97%, excluding abstentions (95% if abstentions are excluded)included) of the votes cast at our 20192020 annual meeting of stockholders.
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50 | First Midwest Bancorp, Inc. |
Compensation Discussion and Analysis
Although the Compensation Committee believes these vote results confirm that our stockholders are in agreement with our approach to executive compensation, the Compensation Committee annually evaluates our compensation program and our compensation disclosure practices in an effort to confirm that our pay and performance are aligned and that our compensation practices are clearly disclosed.
The COVID-19 Pandemic and its Impact on Our 2020 Incentive Compensation Program
The COVID-19 pandemic had significant and far-reaching impacts on the U.S. and global economies, our clients, colleagues and communities, our business and operations and, as a result, our 2020 incentive compensation program. The following discussion presents the actions taken and decisions made by our Compensation Committee regarding our 2020 compensation program in light of our Company’s 2020 performance and navigation through the pandemic. Highlights of our 2020 compensation program decisions include the following:
| ◆ | Annual Cash Incentive Program. During 2020, the Committee made no adjustments to the performance goals for our annual cash incentive program, which were established in February 2020 prior to the onset of the pandemic. Following a review of our 2020 performance, our significant achievements in 2020 and various other factors, and after balancing a range of possible payouts, from 0% (based upon our Company’s actual performance against the goals established by the Committee) to 115% (based upon our Company’s performance against the same goals adjusted for the effects of the pandemic), the Committee determined to approve a payout at 75% of target under the program to all participants. |
| ◆ | Performance Shares. The Committee made no adjustments to our outstanding performance share awards (our 2018-2020, 2019-2021 and 2020-2022 performance share awards). With respect to our performance share awards for the 2018-2020 performance period, the Committee certified actual performance at 50% of target, reflecting the substantial offset of our pandemic-influenced 2020 performance against stronger performance in 2018 and 2019. |
| ◆ | No Special, One-Time Awards. The Committee made no special one-time cash or equity awards to our named executive officers for 2020, believing that pay is best linked with performance through the existing structure of our compensation program. |
Establishment of Our 2020 Incentive Compensation Program
Our 2019 fiscal year was exceptionally strong and productive, during which we generated record levels of total revenue and core net income, controlled expenses and completed two strategic acquisitions while announcing a third, Park Bank, which would continue our strategic expansion into Milwaukee and the greater southeast Wisconsin market. In February 2020, management presented to our Board of Directors, and the Board approved, the Company’s 2020 operating plan and budget that did not envision a global pandemic but instead contemplated a normalized operating environment, stable interest rates, continued strong corporate performance, the scheduled implementation of the Current Expected Credit Losses (CECL) accounting standard and the completion of our Park Bank acquisition. In accordance with our customary practice, our Compensation Committee approved our 2020 compensation program, including the establishment of performance metrics and goals for our 2020 annual cash incentive program and performance share awards, based on our Board-approved operating plan and budget for 2020. All metrics used for our annual cash incentive program and performance share awards are based on objective financial goals and have no built-in discretionary components.
Navigating the Pandemic
In March 2020, the COVID-19 pandemic took hold globally and began to impact the United States. In response, federal and state governments imposed sweeping lockdowns, resulting in an unprecedented effect on the U.S. economy and our business. In an effort to balance the adverse economic impact of the pandemic and these lockdowns, the federal government took a number of measures aimed at stimulating the economy. Relatedly, the Federal Reserve sought to support the economy by significantly cutting interest rates in March 2020 by 150 basis points to near zero. This action caused the Company’s interest income on loans, which is the largest component of our revenues, to decrease significantly and rapidly. By April 2020, unemployment in the United States reached 15%. A number of our commercial borrowers permanently or temporarily closed or otherwise scaled back their
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2021 Proxy Statement | 51 |
Compensation Discussion and Analysis
operations as a result of the pandemic. Our consumer borrowers were also negatively affected. Many clients – both commercial and consumer – looked to us for assistance.
Our management team took immediate and decisive actions to mitigate the impact of the pandemic, not just on our own business, but also for our colleagues, our clients and the communities we serve. With banking considered an essential business, we committed to remaining open with operations as near usual as possible and doing our part to help maintain the functioning of and confidence in the financial system amidst the uncharted uncertainty of the pandemic. For example:
| ◆ | We remained focused throughout 2020 on executing on our business priorities of continuing to build an empowered, engaged and diverse team, growing and diversifying our revenues and investing in our future. |
| ◆ | We controlled operating expenses and pivoted our business and capital deployment strategy towards supporting colleagues, clients and our communities. In mid-2020, we proactively and opportunistically supplemented our already strong capital position through the issuance of $230 million of preferred stock, which also offset the cash portion of the purchase price that we paid in our Park Bank acquisition. Throughout the year, we also worked to reposition our balance sheet to mitigate the financial impacts of the pandemic on the Company. |
| ◆ | Given the dramatic drop in the United States’ gross domestic product, the significant increase in the U.S. unemployment rate and other negative economic effects early in the pandemic, as well as the limited visibility we had at that time regarding the timing of any economic recovery, we believed it reasonable to expect heightened loan defaults. Accordingly, we increased our allowance for credit losses as a precautionary measure. Coupled with the impact of our implementation of CECL during the first quarter of 2020, at the height of the pandemic our credit allowances effectively doubled from December 31, 2019. Our credit underwriting remained strong and our loan portfolio remained stable throughout 2020, and we did not experience the credit losses we anticipated. |
| ◆ | From the ground up, we designed and implemented – at a cost of over $3 million – the systems and infrastructure necessary to support our participation in the Paycheck Protection Program, which was implemented to help alleviate the financial strain of the pandemic on small businesses. Within six weeks, we closed and funded over $1.2 billion of PPP loans for 6,700 clients, including many new clients turned away by other financial institutions, thereby positively impacting the lives and well-being of approximately 150,000 small business employees and their families in our communities. We are also participating in the second round of the PPP loan program that launched in early January 2021. |
| ◆ | We remained committed to serving our clients as a source of strength. We undertook extensive client outreach to gauge and understand their needs while assuring them of our financial strength and stability in order to continue to meet their needs. In addition, we offered aid and support to help ease the financial burden of the pandemic for more than 9,000 businesses and individuals through payment deferral and fee assistance programs. |
| ◆ | We maintained our top 10 deposit share in the greater metropolitan Chicago market (top 2 in south metro and top 3 in northwest Indiana) and gained a top 10 deposit market share in Milwaukee through our Park Bank acquisition. We increased our ratio of core deposits to total deposits to 87% in 2020, up from 77% in 2019, thereby maintaining our low-cost core deposit advantage. |
| ◆ | We rapidly transitioned to a work-from-home posture for all colleagues for whom working from a First Midwest location was not required – approximately 50% of our 2,100 colleagues. This was made possible through the efforts of our information technology, information security and operations teams, who, without incident, stood-up the processes and infrastructure to support this work-from-home environment over little more than a week. |
| ◆ | For those colleagues who continued to go into our branches and other locations to support our customer service, lending, wealth management and other day-to-day operations, we proactively implemented health and safety protocols designed to protect both our teams and our clients. We also responded to the |
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52 | First Midwest Bancorp, Inc. |
Compensation Discussion and Analysis
| tremendous strain and pressure of the pandemic placed on our customer-facing and operations colleagues by providing premium pay and bonuses. In addition, we provided interest-free hardship and emergency medical loans to over 500 colleagues and enhanced benefits and paid time off programs for colleagues across the Company. |
| ◆ | We furthered our long-standing commitment to diversity, equity and inclusion by continuing to build on our learning curriculum relating to inclusive leadership and cultural competency skills and to minimize unconscious bias. This commitment is embraced by all of our colleagues and is facilitated by our Head of Corporate Social Responsibility and Diversity, Equity and Inclusion and her team. |
| ◆ | We never lost sight of the importance of supporting our communities through the pandemic. As a supplement to our ongoing charitable and community development activities, we provided extensive support to our community and nonprofit partners across our footprint. The First Midwest Charitable Foundation committed $2.5 million in community support in response to the pandemic. We also enhanced our matching gift and employee giving programs to support our colleagues in their support of worthy organizations, and we implemented a successful – remote – volunteer week. |
| ◆ | We maintained the cash dividends on our common stock and increased them by 4% from the dividends paid in 2019. |
We believe that our success in responding to the pandemic and the strong leadership and commitment exhibited by our management team and all of our colleagues can be viewed, in part, through the performance of the Company’s stock price throughout the pandemic. The chart below reflects the Company’s stock price from shortly before the onset of the pandemic, through its depths and the market volatility of 2020, to the pandemic’s one-year anniversary. Our stock price declined in early 2020 but has recovered to its pre-pandemic level.
| * | The Company common stock price was measured monthly on the 15th of each month or the nearest trading day. |
Impact on Our 2020 Compensation Program
Our Compensation Committee intends to considerdetermined shortly after the vote results from this year, and future advisory votes, when determiningpandemic began that it was unlikely the design and amounts providedCompany would meet the threshold performance level for a payout under our executive2020 annual cash incentive program given that our 2020 performance goals did not contemplate the pandemic and that the pandemic would weigh heavily on our performance under our outstanding performance share awards, including our 2018-2020, 2019-2021 and 2020-2022 performance share programs. The Committee recognized that the unforeseen and abrupt reduction in interest rates within our loan portfolio, the payment deferrals and other financial accommodations that we provided to our clients who needed assistance, the additional provisions we made to our allowance for credit losses and the other costs that we incurred in responding to the pandemic would all negatively impact our financial performance in 2020 and, with it, our performance against the goals established for our incentive compensation program.
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2021 Proxy Statement | 53 |
Compensation Discussion and Analysis
However, after discussions with its independent compensation consultant and the Company’s management, the Compensation Committee determined not to modify the metrics or performance goals for our 2020 annual cash incentive program or our outstanding performance share awards. Instead, the Committee decided to let the incentive programs operate as originally approved in February 2020 and make a determination on final payouts after the completion of 2020 when a more holistic view of performance was available.
Annual Cash Incentive Program
Based on the Company’s financial performance for 2020 against goals established before the onset of the pandemic, the Company fell short of achieving threshold performance under our annual cash incentive program, with the result being that none of our colleagues would have received a cash bonus for 2020 due to circumstances beyond their control and not caused by them. After reviewing our 2020 performance and the successes achieved and in light of the tremendous efforts undertaken across our Company in responding to the pandemic, our Compensation Committee believed that it was appropriate to provide a partial payout under the annual cash incentive program to reward our colleagues for their business execution under unprecedented and extremely challenging circumstances and to motivate and retain our colleagues, all of which will benefit our Company and our stockholders.
When evaluating the appropriate payout under our annual cash incentive program, the Committee considered the Company’s performance, both including and adjusted for the impact of the pandemic, stockholder and employee interests, marketplace and peer considerations and a range of potential payouts, as well as consulted with its independent compensation consultant. Upon conclusion of the Committee’s deliberations, the Committee determined that it was appropriate to approve a payout at 75% of target under the program to all plan participants. The Committee’s compensation consultant indicated that such a payout was a rational approach given the overall view of performance in 2020. While not directly related to 2020 compensation, the Committee also determined to forgo merit salary increases for most of our senior leadership in 2021, including our Chief Executive Officer and our President.
In making its decision regarding the annual cash incentive program payout, our Compensation Committee sought to balance the reality of the Company’s operating performance that was not in management’s control as compared to budget against the successes and efforts taken across the Company during 2020, as described above. In this regard, the Committee considered an analysis of the Company’s performance as applied to our 2020 annual cash incentive program, both including the impact of the pandemic and excluding those impacts of the pandemic that management believed could be reasonably identified and quantified. These two possible outcomes are depicted in the chart below.
The adjustments for the pandemic include the pandemic-related addition to our provision for loan losses, the decrease in interest rates, our participation in the Paycheck Protection Program, and the additional pandemic assistance programs and expenses which, in the aggregate, resulted in a $93 million impact to core net income and had an 8% impact on the efficiency ratio. With respect to asset quality, management determined that the impact of the pandemic was too difficult to isolate and estimate, but management believes asset quality would have been achieved at approximately target but for the pandemic.
As summarized below, after excluding pandemic-related effects, the Company would have achieved a payout under its annual cash incentive program of 115% in 2020.
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| | Core Net Income - 80% | | Asset Quality - 10% | | Efficiency Ratio - 10% | | | | ||||||||||||||
| | | | Payout as a | | | | Payout as a | | | | Payout as a | | | |||||||||
| | | | Percentage | | | | Percentage | | | | Percentage | | Total | |||||||||
|
| Actual |
| of Target |
| Actual |
| of Target |
| Actual |
| of Target |
| Payout | |||||||||
Final, as certified | | $ | 118 | million | | 0 | % | | $ | 845 | million | | 0 | % | | 62.0 | % | | 0 | % | | 0 | % |
Final, adjusted for pandemic | | $ | 211 | million | | 115 | % | | $ | 504 | million | | 100 | % | | 57.0 | % | | 131 | % | | 115 | % |
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54 | First Midwest Bancorp, Inc. |
Compensation Discussion and Analysis
Additionally, the Committee acknowledged the Company’s continued financial strength and stability during the pandemic, the Company’s 2020 financial performance relative to other financial services companies, and other elements of the Company’s performance in 2020, including the following:
Financial and Strategic (including the impact of the Park Bank acquisition)
| ◆ | Increased total assets to $21 billion, up 17% from December 31, 2019 |
| ◆ | Grew total deposits to $16 billion, up 21% from December 31, 2019 |
| ◆ | Grew total loans to $14 billion (excluding PPP loans), up 9% from December 31, 2019 |
| ◆ | Achieved a record year of mortgage banking and wealth management income |
| ◆ | Repositioned our balance sheet, opportunistically augmented capital through the issuance of $230 million of preferred stock and prudently increased our allowance for loan losses |
| ◆ | Completed our acquisition and integration of Park Bank on time and through the height of the pandemic |
| ◆ | Continued to take steps to advance our technology, increasing our technology spend by more than one-third from 2019, and enhancing our digital capabilities; the pandemic accelerated our already growing trend of increased online, mobile and digital offerings |
Health and Wellbeing of Colleagues
| ◆ | Implemented health and safety protocols resulting in minimal COVID-19 cases within our Company |
| ◆ | Provided premium pay and bonuses to colleagues who continued to serve our clients from one of our branches or other locations; made interest-free hardship and emergency medical loans in support of over 500 colleagues and enhanced our benefits and paid time off programs; rapidly and successfully transitioned approximately 50% of our colleagues to a work-from-home mode |
| ◆ | Instituted regular town hall calls and a dedicated pandemic portal to keep colleagues informed and connected |
| ◆ | Continued our emphasis on and accelerated our diversity, equity and inclusion efforts, including through listening sessions across the Company and other colleague forums |
| ◆ | Witnessed colleague engagement scores increase year-over-year in 2020 |
Recognition
| ◆ | Recognized again in 2020 as one of Chicago Tribune’s Top Places to Work, and the highest rated commercial bank in Chicago |
| ◆ | Named again in 2020 as one of Forbes’ Best-in-State Banks |
| ◆ | Maintained our Outstanding rating by the Federal Reserve under the Community Reinvestment Act – we have maintained this rating for almost 25 years |
| ◆ | Extensively supported our communities, including through a $2.5 million commitment from the First Midwest Charitable Foundation, enhanced matching gift and employee giving programs and our first virtual volunteer week |
In totality, the Committee believed that all of the accomplishments in 2020 resulted in the Company being stronger, more resilient and nimble and well-positioned for growth entering 2021.
Performance Shares
As with our 2020 annual cash incentive program, our outstanding performance share awards for the 2018-2020, 2019-2021 and 2020-2022 performance periods were significantly impacted by the pandemic. Notwithstanding this, our Compensation Committee determined to make no adjustments to our outstanding performance share awards.
With respect to our 2018-2020 performance share awards, as to which our Compensation Committee certified performance in February 2021, these awards paid out at 50% of target. As discussed more fully below under 2020 Compensation Program – Long-Term At-Risk Equity Compensation (Performance Shares and Restricted
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2021 Proxy Statement | 55 |
Compensation Discussion and Analysis
Stock) – Performance-Based Equity Compensation, these awards were based on two performance metrics – the Company’s three-year TSR as measured against our 2018 peer group and the Company’s CRATCE – as compared to predetermined CRATCE goals established by the Committee at the beginning of each year of the three-year performance period and based on the Company’s Board-approved budget. Each metric was weighted equally at 50%.
The Company’s TSR performance for the 2018-2020 performance shares was significantly impacted by several factors, including severe market volatility throughout the pandemic and corresponding reduced earnings, general downward pressure on financial services stocks as a result of the pandemic and near-zero interest rates, and the disproportionate impact of the events of 2020 on certain companies. Additionally, of the original 18 peers against which our TSR performance was measured, as of December 31, 2020, only 13 remained as a result of industry consolidation. As a result of these factors, the Company’s three-year TSR performance fell below threshold, resulting in a 0% payout with respect to the TSR portion of our 2018-2020 performance shares. Beginning with our 2020 performance share awards (2020-2022 performance period), our relative TSR metric is now compared to the ^KRX Index in an effort to better control for the impact of M&A volatility.
Similarly, the final payout for the CRATCE metric of our 2018-2020 performance shares was significantly impacted by the pandemic. For the reasons described above, the Company earned significantly less net income in 2020 as compared to budget, which resulted in the Company’s CRATCE performance for 2020 falling short of threshold. Our 2020 performance substantially offset strong, above-budget performance in 2018 and 2019 and resulted in an overall 100% payout with respect to the CRATCE portion of the 2018-2020 performance shares.
As a result, and applying the performance goals for the TSR and CRATCE metrics without any adjustment for the impact of the pandemic, the performance shares for the 2018-2020 performance period were earned at 50% of target.
Summary of 2020 Payouts
Upon completion of our Compensation Committee��s deliberations with respect to the Company’s annual cash incentive program and performance shares, the Committee certified performance as follows:
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Annual Cash Incentive Compensation Earned for 2020 | Performance Share Awards Earned 2018-2020 Performance Period |
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56 | First Midwest Bancorp, Inc. |
Compensation Discussion and Analysis
In light of our commitment to our pay for performance practices, the Compensation Committee continued to design our compensation program weighted towards at-risk elements. For 2020, the Committee structured our compensation program such that approximately 73% of the target total direct compensation (base salary, annual cash incentive and long-term stock incentive) paid to our Chief Executive Officer would be at-risk. At-risk compensation, as reflected below, includes compensation that must be earned on the basis of achievement of performance goals (annual cash incentive and performance shares) or that has a future value based on the performance of our common stock (performance shares and restricted stock).
The outcome of our 2020 compensation program is consistent with our Compensation Committee’s position of designing and implementing a compensation program that rewards pay for performance. The fixed base salary component of our CEO’s compensation, combined with actual performance under our 2020 annual cash incentive program, plus his 2020 performance shares and restricted stock awards valued at the December 31, 2020 closing common stock price resulted in a compensation value for our CEO at 68% of target levels for 2020, reinforcing our pay for performance compensation structure and alignment with stockholders. The goals for our performance-based compensation programs are designed to be rigorous, as evidenced by the payouts for our named executive officers and all colleagues under our annual cash incentive program and performance share program over the last 3 years reflected below, including in 2019 when the Company experienced its highest levels of total revenues and net income in its history.
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| | Payout as a Percentage of Target | | ||||
Program | | 2018 | | 2019 | | 2020 | |
Annual Cash Incentive Compensation | | 100% | | 107% | (1) | 75% | (2) |
Performance Shares | | 92% | | 100% | | 50% | |
| (1) | Reflects core corporate performance only and not the impact of line of business contributions. |
| (2) | Reflects the Compensation Committee’s determination to award payouts at 75% of target for all participants. |
When setting target compensation for 2020, our Compensation Committee considered the continued growth, record earnings and improvements in our operating efficiency we achieved as a Company in 2019. The Compensation Committee reviewed target compensation for our Chief Executive Officer in February of 2020 and set target opportunities for the year.Based on an assessment of our CEO’s performance and continued importance in leading the Company, as well as an analysis of CEO compensation across our peer group, including the desire to set compensation at approximately the median of the peer group, the Committee made the following decisions relating to CEO compensation for 2020:
| ◆ | A 2.8% increase in base salary to $900,000. |
| ◆ | No change to the target opportunity for the annual cash incentive award of 100% of base salary. |
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2021 Proxy Statement | 57 |
Compensation Discussion and Analysis
| ◆ | No change to the target opportunity for the performance share award of 110% of base salary. |
| ◆ | No change to the target opportunity for the restricted stock award of 60% of base salary. |
These actions continued the emphasis on performance-based compensation, linked 73% of our CEO’s pay to performance-based, at-risk awards and positioned his target total direct compensation at approximately the median of our peer group.
2021 Compensation Program Updates
For 2021, our Compensation Committee approved certain updates to our compensation program to further enhance our pay for performance objectives, as follows:
| ◆ | Annual Cash Incentive Program. For our 2021 annual cash incentive program, the Compensation Committee has determined to make several changes to the metrics used based on a recommendation from management and the concurrence of the Committee’s independent compensation consultant. These changes are intended to better link the impact that participants’ efforts have on the Company’s overall financial performance with performance under the program, more evenly balance the weighting of our metrics between revenue, credit and cost management, and account for the ongoing volatility and uncertainty of the current operating environment. The 2021 program design continues to align with market practice and the Company’s performance-based philosophy. |
| o | The core net income metric (formerly weighted at 80% for corporate participants and 40% for business line participants) will be replaced with pre-tax pre-provision earnings and will be weighted at 60% for all participants. |
| o | The efficiency ratio metric (formerly weighted at 10% for all participants) will be replaced with operating expense as compared to our budget and will be weighted at 20% for all participants. |
| o | The asset quality metric (formerly weighted at 10% for all participants) will be weighted at 20% for all participants. |
| o | The business unit-specific metrics (formerly weighted at 40% for business line participants) will be eliminated altogether so that all participants are evaluated using the same metrics. |
| ◆ | Performance Share Program. Our performance share program will continue to be based entirely on relative performance and to use the same performance metrics, relative TSR and relative CRATCE, each weighted at 50% with a three-year performance period and each measured against the ^KRX Index. |
The Committee made no changes to the target award opportunities for our named executive officers under our 2021 annual cash incentive, performance share (2021-2023 performance period) and restricted stock programs.
Additionally, upon the recommendation of our Chief Executive Officer, the Committee made no increases to the base salaries of our named executive officers for 2021 with the exception of Mr. Prame, whose annual base salary was increased by $25,000 (6.25%) in recognition of his additional responsibilities due to the strategic realignment of our wealth management platform under his leadership in early 2021.
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58 | First Midwest Bancorp, Inc. |
Compensation Discussion and Analysis
Our Compensation Committee, with input from our independent compensation consultant and management, has designed a compensation program that promotes a pay-for-performancepay for performance environment intended to createenhance stockholder value and encourage and reward the Company’s short-term and long-term financial success and the achievement of performance goals established by the Compensation Committee at the beginning of each performance period. As such, a significant portion of the compensation of our executive officers (including our named executive officers) is at-risk compensation, with the amount of compensation that can be earned tied to the attainment of performance goals and the long-term value of our Common Stock.common stock. The Committee selects metrics that it believes are aligned with our corporate strategies and correlated to the creation of stockholder value and sets performance goals for each metric that it believes are sufficiently rigorous.challenging.
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Compensation Discussion and Analysis
Our Compensation Committee also believes that our compensation program must be market-competitive to attract and retain skilled and motivated executives who can successfully grow and manage our business in an increasingly competitive and regulated environment. Adherence to this philosophy forms the overall premise of our executive compensation program and is based on the compensation principles set forth below.
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Compensation Discussion and Analysis
The Compensation Committee considers various compensation and corporate governance best practices when making executive compensation decisions, including the following:
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WHAT WE DO | |
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√ | Double Trigger Vesting of Equity Awards Upon a Change-in-Control |
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√ | Double Trigger for Severance Upon a Change-in-Control |
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√ | Capped Incentive Payouts |
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√ | Clawback of Compensation |
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√ | Anti-Pledging and Anti-Hedging Policy |
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√ | Stock Ownership Guidelines |
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√ | Independent Compensation Consultant |
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√ | Minimum Vesting Periods |
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√ | Compensation Risk Assessment |
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√ | Protective Covenants |
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√ | Performance Share Awards Based Entirely on Relative Performance |
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WHAT WE DON’T DO | |
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x | No Excise Tax Gross-ups |
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x | No Dividends Paid on Equity Awards Prior to Vesting |
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x | No Stock Option Repricing |
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x | No Excessive Perquisites/No Tax Gross-ups on Perquisites |
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x | No Liberal Share Recycling |
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| First Midwest Bancorp, Inc. |
Compensation Discussion and Analysis
Set forth below are the compensation procedures followed each year by the Compensation Committee, our compensation consultant and management.
Subject to approval of our Board of Directors, the Compensation Committee reviews and approves the principal elements and amounts of compensation paid to our Chief Executive Officer, Chief Operating Officer and other executive officers. Our Compensation Committee reviews the Chief Executive Officer’s performance and considers the recommendations of the Chief Executive Officer when determining compensation for our Chief Operating Officer and other executive officers other than himself. Our Compensation Committee considers information provided by its compensation consultant and management and obtained from publicly available information about the companies in our peer group. | Our Chief Executive Officer and Chief Operating Officer review the performance of their respective direct reports and each determine the individual performance ratings of these executives for the year. Individual performance ratings impact the amount of annual cash incentive compensation earned by, and the restricted stock awards granted to, our executive officers other than our Chief Executive Officer and Chief Operating Officer, whose performance is based solely on the Company’s performance. | CAP assists our Compensation Committee with executive compensation program design, ongoing review of our executive compensation program and the amounts and mix of cash, equity and incentive compensation to be paid to our executive officers. CAP also provides analysis of the compensation practices of companies in our peer group and in our market area, assessment of the market competitiveness of our executive compensation program, say-on-pay analysis and peer group composition. CAP participates in Compensation Committee meetings on request, regularly provides input for Committee meetings and attended [__] meeting[s] in 2017. Members of our Compensation Committee also consult with CAP outside of Committee meetings. Our Compensation Committee assesses CAP’s independence each year and concluded that CAP is independent under applicable rules of the NASDAQ Stock Market. |
◆ Our Compensation Committee reviews and approves our executive compensation philosophy. ◆ Our Compensation Committee considers information provided by its independent compensation consultant, Compensation Advisory Partners LLC (“CAP”), and management, as well as obtained from publicly available information about the companies in our peer group. ◆ Subject to approval of our Board of Directors, the Compensation Committee reviews and recommends the principal elements and amounts of compensation paid to our Chief Executive Officer, our President and other executive officers. ◆ Our Compensation Committee reviews the Chief Executive Officer’s performance and considers the recommendations of the Chief Executive Officer when determining compensation for our President and ◆ Our Compensation Committee assesses CAP’s independence each year and concluded that CAP is independent under applicable rules of the NASDAQ Stock Market. | ◆Our Compensation Committee retained CAP to serve as its independent compensation consultant for ◆ CAP assists our Compensation Committee with executive compensation program design, ongoing review of our executive compensation program and the amounts and mix of cash, equity and incentive compensation to be paid to our executive officers. ◆ CAP also provides analysis of the compensation practices of companies in our peer group and in our market area, assessment of the market competitiveness of our executive compensation program, say-on-pay analysis and peer group composition recommendations. ◆CAP | ◆ Our Chief Executive Officer makes recommendations to the Compensation Committee with respect to the compensation for our President and other executive officers. ◆ Our Chief Executive Officer and our President review the performance of ◆ Individual performance ratings impact the amount of annual cash incentive compensation earned by our executive officers other than our Chief Executive Officer and our President, whose performance is based solely on the Company’s performance. Individual performance ratings also impact the restricted stock awards granted to our executive officers other than our CEO and |
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Compensation Discussion and Analysis
Our Compensation Committee reviews publicly-available information about a group of regional bank holding companies whose size, business mix and geographical markets are generally similar to ours and with whom we may compete for executive talent. We refer to these institutions as our peer group.
Our Compensation Committee uses peer information as one of several factors when evaluating and setting the elements and amounts of the compensation paid to our named executive officers. The Committee considers peer group and other available data, including market surveys, as a competitive market check when establishing the compensation of our named executive officers. The Committee strives to set compensation at approximately the median for comparable officers of the peer group.
Our peer group is developed with input from our Compensation Committee’s independent compensation consultant and management, and is approved annually by the Compensation Committee. Companies in our peer group may be removed from year-to-year if a company has been acquired or if a peer company’s size, business mix or other factors have changed such that the Compensation Committee believes that a particular company no longer continues to be representative of the peer group or the Company. Companies were selected based on asset size that is generally ½ to 2x the Company’s size such that the Company is positioned at approximately the median of the peers.
Our 20192020 peer group consisted of the following 1726 companies:
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2020 PEER GROUP | ||
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Name of Institution | ||
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References to our “peer group” throughout this Proxy Statement are references to the 2019 peer group described above, unless otherwise indicated.
Several institutions that had been in our peer group are or have been subject to M&A activity, resulting in a projected 2020 peer group of 13 companies, down from 18 in 2017. As a result, management recommended to our Compensation Committee that it was an appropriate time to re-evaluate the composition of our peer group to ensure the structure of our compensation program continues to be consistent with market developments. Management, with input from the Committee’s independent compensation consultant, considered and analyzed various criteria to develop a list of potential peers for the 2020 peer group. We considered, among other characteristics, publicly-traded financial institutions with total assets of between $10 billion and $40 billion, whether the business models and performance metrics of these companies are similar to or align with our own, and the geographic presence, branch distribution, M&A activity and TSR performance of potential peers.
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Compensation Discussion and Analysis
Based on this analysis, in January 2020, upon management’s recommendation and with the compensation consultant’s concurrence, the Compensation Committee approved the following new peer group as our 2020 peer group. The 2020 peer group was utilized by the Compensation Committee when establishing the compensation of our named executive officers for 2020.
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Associated Banc-Corp (Green Bay, WI) |
BancorpSouth Bank (Tupelo, MS) |
Banner Corp (Walla Walla, WA) |
Berkshire Hills Bancorp Inc. (Boston, MA) |
Cullen/Frost Bankers Inc. (San Antonio, TX) |
F.N.B. Corporation (Pittsburgh, PA) |
First Financial Bancorp (Cincinnati, OH) |
First Interstate BancSystem (Billings, MT) |
First Merchants Corp. (Muncie, IN) |
Fulton Financial Corporation (Lancaster, PA) |
Glacier Bancorp, |
Hancock Whitney Corporation (Gulfport, MS) |
Heartland Financial USA Inc (Dubuque, IA) |
Independent Bank Corp. (Rockland, MA) |
Old National Bancorp (Evansville, IN) |
Pinnacle Financial Partners (Nashville, TN) |
Prosperity Bancshares Inc. (Houston, TX) |
Simmons First National Corp (Pine Bluff, AR) |
South State Corporation (Greenville, SC)* |
Trustmark Corporation (Jackson, MS) |
UMB Financial Corporation (Kansas City, MO) |
Umpqua Holdings Corp. (Portland, OR) |
United Bankshares Inc. (Charleston, WV) |
Valley National Bancorp (Wayne, NJ) |
Webster Financial Corp. (Waterbury, CT) |
Wintrust Financial Corporation (Rosemont, IL) |
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Compensation Discussion and Analysis
How We Measure Company Performance
At the beginning of the year, management recommends to our Compensation Committee, and the Committee, following discussions with its independent compensation consultant, approves and recommends to our Board of Directors for approval, corporate-wide metrics, and, in certain cases, line of business-specific metrics, and the performance goals attributed to those metrics.metrics for our incentive compensation awards. For purposes of determining our annual cash incentive program and our performance share awards, the Company’s actual performance is measured against these performance goals.
The primary metric for our annual cash incentive program has historically been a metric based on our corporate earnings measured against a performance goal determined by our Compensation Committee. For our annual cash incentive program in 2020, the Compensation Committee determined to use core net income as well as the efficiency ratio and asset quality for the corporate performance metrics. In 2020, we also included a line of business-specific metric. The performance goals for each metric are based on a Board-approved budget for a particular year. Payouts under our annual cash incentive program are typically made only if the core net income goal is met at the threshold corporate financial performance is achieved andlevel. Payouts are then based on the degree to which the performance goals for each metric are achieved. This amount may be increased or decreased for individual executive officers (other than our Chief Executive Officer and our President) based on their individual performance ratings, and also may be decreased if ourratings. The Compensation Committee determinesmay also exercise its discretion, which the Committee typically has not done, in order to use negative discretion to reduceincrease or decrease payouts under certain circumstances. In 2020, for the pandemic-related reasons discussed above in the Compensation Discussion and Analysis – Executive Summary, the Compensation Committee determined to authorize annual cash incentive awards at 75% of target.
For the performance share component of our executive compensation program, we have historically used an external metric (relative TSR) and an internal metric (RATCE, adjusted)(CRATCE), weighted equally at 50% each, and a three-year performance period. PerformanceBeginning with performance share awards made in 2020, based on a recommendation from management and with the concurrence of the Committee’s independent compensation consultant, our Compensation Committee approved using the ^KRX Index to measure both relative TSR performance and CRATCE. Previously, performance shares have beenwere earned based on the Company’s (i) TSR performance compared to our peer group and (ii) RATCECRATCE performance measured against a performance goal tied to our Board-approved budget.
For our performance share awards granted in February 2020 (2020-20222021 (2021-2023 performance period), the Compensation Committee determined to continue to use both relative TSR and RATCE, adjusted,CRATCE, weighted equally at 50% each, as the performance metrics. Performance goals for both metrics will be measured on a relative basisagainst the ^KRX Index over the three-year performance period. Both metrics will be measured against the ^KRX Index rather than against our peer group for TSR and our budget for RATCE, adjusted, as in prior years.
The Compensation Committee must certify the level of achievement of the performance goals for both annual cash incentive compensation and performance share awards before the awards may be earned. The Committee takes into consideration the overall quality of results and may, in limited circumstances, determine to make certain adjustments. Over the past three years, our annual cash incentive (as to core corporate performance and excluding line of business contributions) and performance share programs have paid out between 92%50% and 107% of target, demonstrating the rigor of our performance-based compensation programs.
How We Measure Individual Performance
In 2019,2020, a portion of the annual cash incentive compensation awards that could be earned by our named executive officers, other than our Chief Executive Officer and our President, was tied to each officer’s individual performance rating for the year and a percentage of the officer’s base salary. Additionally, the number of shares of
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2021 Proxy Statement | 63 |
Compensation Discussion and Analysis
restricted stock awarded to our named executive officers, other than our Chief Executive Officer and our President, was based on the officer’s individual performance rating and a percentage of the officer’s base salary. The
Our Chief Executive Officer and our President do not receive individual performance ratings. As such, the annual cash incentive awards for our Chief Executive Officer and our President are based solely on Company performance. Theperformance, and their annual restricted stock award for our Chief Executive Officer isare based solely on a percentage of histheir base salary. Beginning in 2020, the annual restricted stock award for our President will also be based solely on a percentage of his base salary.salaries.
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Compensation Discussion and Analysis
The determination of a named executive officer’s individual performance rating is based on actions taken or results achieved by the executive and how these actions and results impacted overall corporate performance and achievement of the goals under our annual cash incentive and performance share programs, as well as specific individual goals established for the executive at the beginning of the year. A subjective assessment of an executive officer’s leadership and other contributions to the Company also may be factored into his or her individual performance rating. Our Chief Executive Officer and our President annually determine the individual performance ratings of their respective direct reports for a particular year, subject to review by the Compensation Committee.
Our Compensation Committee believes that our executive compensation programs must be internally consistent and equitable in order for the Company to be able to attract and retain the executive officers necessary to achieve our business and financial objectives and to create a cohesive team atmosphere within the Company. As such, the Committee periodically reviews total compensation and various elements of compensation paid to our Chief Executive Officer in relation to our President and to our other named executive officers as a group, as well as the compensation of our CEO as compared to the executive officers at the companies in our peer group. The Committee usesgroup, and may use this information as another point of reference in its compensation decisions.
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Compensation Discussion and Analysis
The Compensation Committee approves, subject to approval by our full Board of Directors, the compensation of our Chief Executive Officer and our other named executive officers each year. In determiningWhen settling the compensation of our named executive officers other than our Chief Executive Officer, the Compensation Committee considers the recommendations of the Chief Executive Officer and the President with respect to histheir respective direct reports, the President.reports. The Committee also considers peer group and market information, publicly available data and guidance from its independent compensation consultant. Compensation is determined based on a consideration of financial performance relative to our corporate performance goals and, withconsultant as well as the exception of our CEO and our President, each named executive officer’s individual performance, market factors and our views regarding a named executive officer’s scope of job responsibilities, demonstrated leadership abilities, management effectiveness and achievement of individual performance goals.
Components of Our Executive Compensation Program
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Compensation Discussion and Analysis
When setting the total compensation opportunity for our named executive officers, our Compensation Committee uses data available from various sources, including peer group information, publicly available data and advice from its compensation consultant. We also consider other relevant factors, such as Company and individual performance, scope of responsibility, internal pay equity and our compensation philosophy.
We reflect at-risk compensation below as compensation that must be earned on the basis of achievement of performance goals (annual cash incentive and performance shares) or that has a future value based on the performance of our Common Stock (restricted stock). In 2019, the percentages of each element of total direct compensation paid to our Chief Executive Officer and President were as follows:
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We pay our named executive officers a base salary as part of a competitive compensation package. Base salary is not directly subject to the achievement of any corporate or individual performance goals. In setting base salary levels, we consider a range of data, including the median base salary paid for positions of similar responsibility at the companies in our peer group, market compensation information, as well as the executive’s performance and levelscope of responsibility.
Annually, our Chief Executive Officer recommends to the Compensation Committee changes in base salaries for our named executive officers, other than himself. Chief Executive Officer pay is set directly by the Compensation Committee, and the base salaries of all named executive officers, including theour Chief Executive Officer, are approved by our Compensation Committee and our Board of Directors.
Annual Cash Incentive Compensation
Our annual cash incentive program is a performance-based program with one-year pre-established performance goals established at the beginning of each year and is our vehicle for awarding annual cash bonuses to our named executive officers and other eligible employees. ExecutivesTypically, executives may earn an incentive cash bonus only upon the achievement of corporate financial goals approved by the Compensation Committee and the Board of Directors at the beginning of the
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2021 Proxy Statement | 65 |
Compensation Discussion and Analysis
each fiscal year based on the Board-approved budget for thethat year. The amount of the bonus is generally determined based on the level of achievement that the Company attains with respect to these corporate financial goals and a percentage of the executive’s base salary, as adjusted upward or downward depending upon the executive’s individual performance rating for the year, other than for our Chief Executive Officer and our President, whose bonuses are each based entirely on Company performance. The annual cash incentive element of our compensation program encourages
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Compensation Discussion and Analysis
our executives to attain corporate financial performance goals that the Compensation Committee believes are consistent with the strategies established for the Company. Cash bonus opportunities under our annual cash incentive program are awarded under our stockholder-approved Stock and Incentive Plan.
The Compensation Committee originally designed annual cash incentive compensation targets in 2020 in furtherance of the following strategic priorities:
| ◆ | Emphasize core profitability of the Company. |
| ◆ | Link pay with corporate performance. |
| ◆ | Continue to profitably increase our loans and diversify our loan portfolio. |
| ◆ | Grow deposits and maintain our strong core deposit base and low cost of funds. |
| ◆ | Continue to diversify our earnings by increasing fee-based revenues. |
| ◆ | Balance investment in our business against risk. |
| ◆ | Continued emphasis on our strong credit quality. |
| ◆ | Control expenses while funding strategic initiatives, such as additional investment in digital delivery channels. |
Cash bonus opportunities under our annual cash incentive program are awarded under our stockholder-approved 2018 Stock and Incentive Plan. Threshold performance for the core net income adjusted, corporate performance goal normally must be achieved (regardless of the level of achievement for the other goals) in order for cash bonuses to be earned and paid.
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| Company Performance. |
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| Individual Performance. Individual performance is based on the level of achievement of the corporate and individual goals that were established for our named executive officers at the beginning of the year and that contribute to the strategic, operational or financial performance of the Company. |
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66 | First Midwest Bancorp, Inc. |
Compensation Discussion and Analysis
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Base Salary | × | Target | × | Company | × | Individual | = | Annual |
The application of Company performance or individual performance, and the target bonus opportunity expressed as a percentage of base salary, for our named executive officers in 20192020 were as follows:
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| | Expressed as a Percentage of | | Corporate | | Line of Business | | Individual | |||||||
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Michael L. Scudder |
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Mark G. Sander |
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Patrick S. Barrett |
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Thomas M. Prame |
| 50 | % | | Yes | ||||||||||
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Compensation Discussion and Analysis
For all corporate function participants, the Compensation Committee selected twothree corporate performance metrics and associated weightings for the annual cash incentive program for 2019,2020, which are as follows:
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Metric | | Weight | | Description | | Purpose | |||
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| | Net income excluding non-recurring items, such as gains or losses on securities, acquisition and integration related expenses, and costs associated with other significant items approved by the Compensation Committee | | Encourages executive management to continue to focus on our current operating performance; this metric also is frequently used to assess short-term corporate performance by stockholders and the investment community | |||||
Asset Quality | | 10% | | | Non-performing assets and classified loans, excluding accruing troubled debt restructurings | | Reflects the importance and continued emphasis on maintaining a high quality credit portfolio | ||
Efficiency Ratio | | 10% | | | Noninterest expense divided by revenues, both, as applicable, excluding non-recurring items such as securities gains and losses, acquisition and integration related expenses, and costs associated with other significant items approved by the Compensation Committee | | Focuses on prudent, conservative spending in comparison to earnings | ||
For line of business participants, the Compensation Committee also included the direct contribution of the corresponding line of business as a performance metric for corporate performance.performance, in addition to the other corporate performance metrics. Of our NEO’s,NEOs, Messrs. Jamieson and Prame are line of business participants due to their roles as the directors of the Commercial and Consumer lines of business, respectively. The threefour corporate
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2021 Proxy Statement | 67 |
Compensation Discussion and Analysis
performance metrics for the annual cash incentive program for the line of business participants for 20192020 were as follows:
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Asset Quality | | 10% | | | (See above) | | (See above) | ||
Efficiency Ratio | | 10% | | | (See above) | | (See above) | ||
Line of Business Direct Contribution (Commercial, Consumer or Wealth) | | 40% | | | Line of business revenue, less direct expenses and estimated credit losses | | Encourages each major line of business to focus on its contribution to overall operating performance, aligns incentives with execution of line of business goals, and enhances differentiation in incentive payouts | ||
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The Compensation Committee utilized annual cash incentive compensation in 2019 in furtherance of the following strategic priorities:
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Compensation Discussion and Analysis
The range of performance and possible payout (as a percentage of base salary)target) for each metric, if applicable,as well as the actual performance for each metric, for 2020 were as follows:
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Metric |
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Core Net Income |
| $ | 164 | million | $ | 205 | million | $ | 226 | million | | $ | 118 | million |
Asset Quality | | $ | 625 | million | $ | 504 | million | $ | 424 | million | | $ | 845 | million |
Efficiency Ratio | | | 59.1 | % | | 57.6 | % | | 56.1 | % | | | 62 | % |
Line of Business Direct Contribution, Commercial | | $ | 201 | million | $ | 252 | million | $ | 277 | million | | $ | 269 | million |
Line of Business Direct Contribution, Consumer | | $ | 138 | million | $ | 173 | million | $ | 190 | million | | $ | 183 | million |
Line of Business Direct Contribution, Wealth | | $ | 14 | million | $ | 17 | million | $ | 19 | million | | $ | 17 | million |
The calculation of the payouts for 2019 allocated to Company performance under our annual cash incentive program for our named executive officers was determined as follows (including certain adjustments to net income in accordance with our annual cash incentive program):
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Named Executive Officers: Michael L. Scudder, Mark G. Sander, Patrick S. Barrett |
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| 93 | % | 90 | % | 84 | % |
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Named Executive Officer: Michael W. Jamieson |
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Net Income, adjusted (excluding M&A impact) |
| $ | 196 million |
| 93 | % | 45 | % | 42 | % |
Asset Quality |
| $ | 450 million |
| 172 | % | 10 | % | 17 | % |
Line of Business Direct Contribution, Commercial |
| $ | 256 million |
| 100 | % | 45 | % | 45 | % |
Total Payout Earned (excluding M&A impact) |
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| 104 | % |
Total Payout Earned (including partial M&A impact) |
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| 110 | % |
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Named Executive Officer: Thomas M. Prame |
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| 2019 Actual |
| Payout as a |
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| Weighted Payout |
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Performance Goal |
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| Performance |
| Percentage of Target |
| Weighting |
| Percentage |
|
Net Income, adjusted (excluding M&A impact) |
| $ | 196 million |
| 93 | % | 45 | % | 42 | % |
Asset Quality |
| $ | 450 million |
| 172 | % | 10 | % | 17 | % |
Line of Business Direct Contribution, Consumer |
| $ | 168 million |
| 101 | % | 45 | % | 46 | % |
Total Payout Earned (excluding M&A impact) |
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| 105 | % |
Total Payout Earned (including partial M&A impact) |
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| 111 | % |
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Although none of our NEOs were in the Wealth line of business, the performance of this business line is shown below |
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| 2019 Actual |
| Payout as a |
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| Weighted Payout |
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Performance Goal |
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| Performance |
| Percentage of Target |
| Weighting |
| Percentage |
|
Net Income, adjusted (excluding M&A impact) |
| $ | 196 million |
| 93 | % | 45 | % | 42 | % |
Asset Quality |
| $ | 450 million |
| 172 | % | 10 | % | 17 | % |
Line of Business Direct Contribution, Wealth |
| $ | 26 million |
| 96 | % | 45 | % | 43 | % |
Total Payout Earned (excluding M&A impact) |
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| 102 | % |
Total Payout Earned (including partial M&A impact) |
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| 108 | % |
The net income, adjusted, performance goal was established for 2019 at a time when the financial impact of our Bridgeview Bank acquisition was not quantifiable, as the closing date for this transaction was not then known. As such, the financial impact of this transaction, which was completed in the second quarter, was not included in the 2019 net income, adjusted, performance goal. Throughout 2019, our Compensation Committee received updates as to how Company performance tracked, both including and excluding the impact of our Bridgeview Bank acquisition, relative to our performance goals under our annual cash incentive program. The Committee believed that including the full financial contribution of this acquisition when calculating the net income, adjusted, goal would have resulted in a payout that would not be appropriately reflective of the Company’s level of performance as compared to this goal.
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Compensation Discussion and Analysis
Accordingly, when certifying the results for our 2019 annual cash incentive program, the Compensation Committee considered the financial impact of the Bridgeview Bank transaction on our 2019 results, and decided to exercise its negative discretion and reduced the level of actual Company-wide performance by excluding a majority of the earnings contribution of Bridgeview Bank from the calculation of the net income, adjusted, performance goal. This decision resulted in a lower annual cash payout equal to 107% of the target award level (excluding line of business contributions). If the full financial impact of Bridgeview Bank had been excluded, this would have resulted in a payout of 101% of target (excluding line of business contributions). The Committee also used a similar approach and reduced the payouts for the named executive officers (and for all other colleagues) whose annual cash incentive included a line of business component, resulting in the payouts reflected in the above table.
The Committee believed, when determining the payouts for 2019, that it was appropriate to include a portion of the financial contribution of the Bridgeview Bank transaction to recognize the value of this acquisition. This was done in order to recognize our executive officers (as well as the other participants in our annual cash incentive program) for the successful completion and integration of this transaction.
Based on the metrics outlined above, which includes the Company’s performance, individual performance for those named executive officers other than our CEO and our President, andWhile the line of business direct contribution, if applicable,goals were achieved at or above target, these metrics were not ultimately applied to the overall award payout calculation because the core net income metric goal was not met. For the reasons discussed above in Compensation Discussion and Analysis – Executive Summary, the Compensation Committee determined to award annual cash incentive compensation awards at 75% of target for participants across the Company. For Mr. Prame, the award amount was adjusted for individual performance. As such, the Compensation Committee approved the following cash bonus awards under our annual cash incentive program for 2019:
For our 2020 annual cash incentive program, the Compensation Committee determined to use the same metrics as those used for 2019 as described above but with the addition of our efficiency ratio as a metric.
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Compensation Discussion and Analysis
Long-Term At-Risk Equity Compensation (Performance Shares and Restricted Stock)
Our Compensation Committee believes that a significant portion of each named executive officer’s compensation should consist of at-risk equity awards in the form of performance shares and restricted stock. The value of these at-risk equity awards is based on the Company’s achievement of financial goals and/or the performance of our Common Stockcommon stock. As such, we further align the interests of our executives with thatthose of our stockholders, link pay with performance and enhance the retention of our senior officers. These awards incent forward-looking and sustained corporate performance together with balanced risk-taking. Long-term equity awards were made in 20192020 under our stockholder-approved 2018 Stock and Incentive Plan.
Performance-Based Equity Compensation
In 2019,Annually, our named executive officers wereare awarded performance shares that may be earned based on the Company’s level of performance over a three-year period (2019-2021).period. If the performance goals are achieved, the performance shares will be earned. Once earned, performance shares vest in full on March 15 following the conclusion of the three-year performance period, assuming the executive’s continued employment with the Company during this entire period. We accrue cash dividends that otherwise would be paid on the performance shares, but the accrued, unpaid dividends are not paid to the named executive officer unless and until the underlying performance shares are earned and subsequently vest.
TheOur Compensation Committee awards performance shares in furtherance of the following strategic objectives:
| ◆ | Emphasize the Company’s long-term strategies and growth objectives. |
| ◆ | Encourage achievement of business goals that will enhance long-term stockholder value. |
| ◆ | Create a long-term focus based on sustainable results. |
| ◆ | Link pay with corporate performance. |
| ◆ | Provide additional stock ownership opportunities for our named executive officers, which further align the interests of our named executive officers with those of our stockholders. |
| ◆ | Foster retention of our named executive officers and avoid management turnover. |
Each year, the number of performance shares granted is based upon a percentage of the base salary of each officer eligible to receive performance shares, with the percentage based ondetermined by the officer’s level of responsibility at the Company. For performance shares, no individual performance rating is used to determine the number of shares awarded. The determination of the number of performance shares earned for each participant is based solely upon the Company achieving certain corporate financial performance goals approved by the Compensation Committee and the Board of Directors.
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Grant of 2020 Performance Share Awards (2020-2022 Performance Share Program). In February 2020, our Compensation Committee granted performance share award opportunities to our named executive officers for the 2020-2022 performance period. Based upon a review of peer practices and input from management and the Compensation Committee’s independent compensation consultant, our Compensation Committee selected both externalrelative TSR and internal performance metrics for our 2019 performance share program, withrelative CRATCE, each metric weighted equally at 50%. The , as the program’s metrics.
| |
2021 Proxy Statement | 69 |
Compensation Committee selectedDiscussion and Analysis
2020-2022 Performance Share Program
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| | | | | | | | | | |
Base Salary | × | Target | × | | Relative TSR, compared to ^KRX Index | + | Relative CRATCE, compared to ^KRX Index | | = | Earned |
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For the relative TSR metric, the performance shares will be earned based on the TSR of the Company, ranked against the TSR of the companies within the ^KRX Index, in both cases for a three-year (2020-2022) performance period. Relative TSR is defined as the price appreciation or depreciation of our common stock and the common stock of each company in the ^KRX Index during the relevant three-year performance period, plus dividends and distributions made or declared (assuming the dividends or distributions are reinvested in our common stock and each ^KRX Index company’s common stock during that period), expressed as a percentage return.
For the relative CRATCE metric, performance shares will be earned based on the CRATCE of the Company ranked against the CRATCE of the companies within the ^KRX Index, in both cases for the external metric and RATCE, adjusted,three-year (2020-2022) performance period. Relative CRATCE is defined as core income as a percent of average tangible common equity for the internal metric.specified period, as reported by S&P Global.
Our Compensation Committee selected these metrics to encourage our named executive officers to pursue corporate strategies that will enhance long-term stockholder value and increase the value of our Common Stockcommon stock within acceptable risk tolerances while at the same time deploying our capital prudently. The Compensation Committee also believedbelieves that comparing ourthe Company’s TSR and CRATCE performance to an external metric wouldthe companies in the ^KRX Index will reward superior companyCompany performance relative to our peer group.
ForU.S. regional bank holding companies that are comparable to the TSR metric, in 2019, performance shares were earned based onCompany. The Committee also believes that using the TSR^KRX Index instead of the Company, ranked against the TSR of the companies within ourCompany’s peer group in both cases for a three-year performance period. TSR is defined aseliminates the price appreciation on our Common Stock and the common stock of each companyvolatility that may arise when companies in the peer group duringare removed to due to a merger transaction or if their growth makes the relevant three-yearcompanies no longer comparable to the Company.
The performance share award opportunities for our named executive officers granted by our Compensation Committee for the 2020-2022 performance period plus dividends and distributions made or declared (assuming the dividends or distributions are reinvested in our Common Stock and each peer group company’s common stock during that period), expressed as a percentage return.follows:
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| Number of Performance |
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| | Target Performance Share | | Shares Awarded for | | Grant Date Fair Value of | |
| | Award Opportunity | | 2020‑2022 Performance | | Performance Share Award | |
| | (Expressed as a Percentage | | Period (Based on Target | | Opportunity (Based on | |
Named Executive Officer | | of Base Salary) |
| Award Level) | | Target Award Level) | |
Michael L. Scudder |
| 110 | % | 47,878 |
| $ | 927,816 |
Mark G. Sander |
| 80 | % | 26,889 | | | 521,077 |
Patrick S. Barrett | | 40 | % | 10,833 | | | 209,931 |
Michael W. Jamieson |
| 40 | % | 9,556 | | | 185,183 |
Thomas M. Prame |
| 40 | % | 7,738 | | | 149,953 |
| |
| First Midwest Bancorp, Inc. |
Compensation Discussion and Analysis
| | | | |
| | Relative TSR | ||
|
| Threshold | Target | Maximum |
Percentile |
| 25th | 50th | 90th |
Payout (% of Target) |
| 25% | 100% | 200% |
| | Relative CRATCE | ||
| | Threshold | Target | Maximum |
Percentile | | 25th | 50th | 90th |
Payout (% of Target) | | 25% | 100% | 200% |
ForVesting of 2018 Performance Share Awards (2018-2020 Performance Share Program). In February 2021, following the RATCE metric, the Company’s RATCE, adjusted, forconclusion of the three-year period is calculated and compared to predetermined RATCE goals for each year of the performance period. The goals for each year are based on the Company’s Board-approved budget and are established and approved by the Compensation Committee at the beginning of each year. The target goal for RATCE, adjusted, was set at 15.75% for 2019, up from 15.02% for 2018. For 2019, we achieved actual RATCE, adjusted, of 16.13% as compared to 15.40% for 2018.
Our Compensation Committee awarded performance shares in 2019 in furtherance of the following strategic objectives:
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In February 2019, our Compensation Committee granted performance share award opportunities to our named executive officers as follows:
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| Number of Performance |
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| Target Performance Share |
| Shares Awarded for |
| Grant Date Fair Value of | |
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| Award Opportunity |
| 2019‑2021 Performance |
| Performance Share Award | |
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| (Expressed as a Percentage |
| Period (Based on Target |
| Opportunity (Based on | |
Named Executive Officer |
| of Base Salary) |
| Award Level) |
| Target Award Level) | |
Michael L. Scudder |
| 110 | % | 44,606 |
| $ | 1,086,223 |
Mark G. Sander |
| 80 | % | 23,102 |
|
| 560,628 |
Patrick S. Barrett |
| 40 | % | 9,306 |
|
| 225,833 |
Michael W. Jamieson |
| 40 | % | 8,214 |
|
| 199,333 |
Thomas M. Prame |
| 30 | % | 4,813 |
|
| 116,799 |
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| Relative TSR | |||||
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| Threshold |
| Target |
| Maximum |
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Percentile |
| 25th |
| 50th |
| 90th |
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Payout (% of Target) |
| 25% |
| 100% |
| 200% |
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| Year |
| Threshold |
| Target |
| Maximum |
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RATCE, adjusted |
| 2017 |
| 11.88 | % | 13.20 | % | 13.86 | % |
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| 2018 |
| 13.52 | % | 15.02 | % | 15.77 | % |
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| 2019 |
| 14.17 | % | 15.75 | % | 16.53 | % |
Payout (% of Target)* |
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| 25 | % | 100 | % | 200 | % |
*At the end of the performance period, the actual performance for each year is averaged to determine the final payout as a percentage of target.
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Compensation Discussion and Analysis
In February 2020, based on the Company’s performance during the 2017‑2019(2018-2020) performance period, our Compensation Committee certified the Company’s performance applicableas to the 2017 performance shares as follows:
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| Payout as a |
| Weighted |
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| 2017-2019 Actual |
| Percentage |
| Payout |
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Performance Goal |
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| Performance |
| of Target |
| Percentage |
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Relative TSR (50%) |
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| 43rd Percentile |
| 79 | % | 39.5 | % |
RATCE, adjusted (50%) |
| 2017 |
| 12.54 | % | 63 | % |
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| 2018 |
| 15.40 | % | 150 | % |
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| 2019 |
| 16.13 | % | 150 | % |
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| 3-Year Average |
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| 121 | % | 60.5 | % |
Total Percentage Earned |
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| 100 | % |
Accordingly, subjectinitially granted to applicable vesting provisions, as described above, our named executive officers will earn their 2017in 2018.
Similar to the performance shares granted in February 2020 (2020-2022 performance period), the performance shares granted in 2018 were based on two metrics, relative TSR and CRATCE, each weighted equally at 50%. Unlike the 2020-2022 performance share awards (2017-2019 performance period) as follows:
*For Mr. Barrett, includes a one-time make-wholeprogram, relative TSR for purposes of the 2018-2020 performance share award grantedprogram was determined by ranking the Company’s TSR against the TSR of each of the companies within our peer group instead of the ^KRX Index, in connection with his recruitmenteach case over the three-year performance period. In addition, for the 2018-2020 performance share program, the Company’s CRATCE was calculated and compared to predetermined CRATCE goals based on the Company in 2017.Company’s Board-approved budget instead of the ^KRX Index.
2018-2020 Performance Share Program
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| × | Target | × | | Relative TSR, compared to peer group | + | CRATCE, compared to predetermined goals | | = | Earned |
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The relative TSR and CRATCE performance opportunities for the 2018-2020 performance share program were as follows:
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| | Relative TSR | |||||
|
| Threshold |
| Target |
| Maximum | |
Percentile |
| 25th |
| 50th |
| 90th | |
Payout (% of Target) |
| 25% | | 100% | | 200% | |
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| Year |
| Threshold |
| Target |
| Maximum | |
CRATCE |
| 2018 |
| 13.52 | % | 15.02 | % | 15.77 | % |
|
| 2019 |
| 14.17 | % | 15.75 | % | 16.53 | % |
|
| 2020 |
| 13.24 | % | 14.71 | % | 15.45 | % |
Payout (% of Target)* | | |
| 25 | % | 100 | % | 200 | % |
* | At the end of the performance period, the actual performance for each year is averaged to determine the final payout as a percentage of target. |
| |
2021 Proxy Statement | 71 |
Compensation Discussion and Analysis
As described above in Compensation Discussion and Analysis – Executive Summary, final performance for the Company’s 2018-2020 performance shares was significantly impacted by the pandemic. Notwithstanding this, our Compensation Committee made no adjustments to the payout calculation for the impact of the pandemic and certified the Company’s performance applicable to the 2018-2020 performance shares as follows:
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| Payout as a |
| Weighted |
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| | | | 2018-2020 Actual | | Percentage | | Payout |
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Performance Goal |
| | | Performance | | of Target | | Percentage | | |||||||
Relative TSR (50%) | | |
| 14th Percentile |
| 0 | % | 0 | % | |||||||
CRATCE (50%) | | 2018 | | 15.40 | % | 150 | % | | | |||||||
| | 2019 | | 16.13 | % | 150 | % | | | |||||||
| | 2020 | | 8.99 | % | 0 | % | | | |||||||
| | 3-Year Average | | | | 100 | % | 50 | % | |||||||
Total Percentage Earned | | | | | | |
| 50 | % | |||||||
Although target thresholds were not met in 2020, our strong, above-target corporate performance in 2018 and 2019 counterbalanced this and resulted in an overall 50% of target payout for performance share awards for the 2018-2020 performance period. Accordingly, subject to applicable vesting provisions, as described above, our named executive officers will earn their 2018 performance share awards (2018-2020 performance period) as depicted below, which reflects the difference in dollar value and number of shares for target awards and awards actually earned. | | | | | | | | |||||||||
Accordingly, our named executive officers earned their 2018 performance share awards (2018-2020 performance period) at 50% of target as outlined below:
2018-2020 Performance Share Award | | | | | | | |
2018-2020 Performance Share Awards |
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| Number of Performance |
| Number of Performance | |
| | | | Shares at Target Award Level for | | Shares Actually Earned for | |
Named Executive Officer | | | | 2018‑2020 Performance | | 2018‑2020 Performance | |
Michael L. Scudder |
| | | 37,467 |
| | 18,733 |
Mark G. Sander |
| | | 18,373 | | | 9,186 |
Patrick S. Barrett | | | | 8,463 | | | 4,231 |
Michael W. Jamieson |
| | | 7,165 | | | 3,582 |
Thomas M. Prame |
| | | 4,274 | | | 2,137 |
As reflected in the table below, the Compensation Committee made no adjustments for the effects of the pandemic to the payout of the performance share awards.
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72 | First Midwest Bancorp, Inc. |
Compensation Discussion and Analysis
In 2019,2020, our executive officers were awarded restricted stock or restricted stock units that fully vest over a three-year period in equal installments on the second and third anniversaries of the grant date, assuming continued employment with the Company. Executives who have attained, or will attain during the vesting cycle, the age of 65 receive restricted stock units.
The number of shares of restricted stock awarded in a given year is determined based on a percentage of the named executive officer’s base salary, and then is adjusted upward or downward depending upon the officer’s individual performance rating for the year, other than for awards to our Chief Executive Officer (and, beginning in 2020,and our President)President, as to whom individual performance is not considered.
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Base Salary | × | Restricted | × | Individual | = | Shares of |
We accrue cash dividends that otherwise would be paid on the unvested restricted stock. The accrued but unpaid dividends are not paid to the named executive officer unless the underlying shares vest.
In 2019,2020, our Compensation Committee granted restricted stock award opportunities to our named executive officers as follows:
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| Restricted Stock |
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| Award Opportunity |
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| (Expressed as a |
| Number of Shares of |
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| Restricted Stock |
| of Shares of Restricted | ||||||||
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| | Award Opportunity | | | | | ||||||||
| | (Expressed as a | | Number of Shares of | | Grant Date Fair Value | ||||||||
| | Percentage of | | Restricted Stock | | of Shares of Restricted | ||||||||
Named Executive Officer |
| Base Salary) |
| Granted |
| Stock Granted |
| Base Salary) | | Granted | | Stock Granted | ||
Michael L. Scudder |
| 60 | % | 25,879 |
| $ | 604,922 |
| 60 | % | 26,115 |
| $ | 539,993 |
Mark G. Sander |
| 50 | % | 17,326 |
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| 404,995 |
| 50 | % | 16,806 | | | 347,506 |
Patrick S. Barrett |
| 40 | % | 11,167 |
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| 261,029 | | 40 | % | 11,916 | | | 246,393 |
Michael W. Jamieson |
| 40 | % | 9,857 |
|
| 230,407 |
| 40 | % | 9,556 | | | 197,594 |
Thomas M. Prame |
| 40 | % | 7,701 |
|
| 180,011 |
| 40 | % | 9,285 | | | 191,991 |
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Retirement and Other Welfare Benefits
We provide our named executive officers with retirement, health, life and disability insurance and other welfare benefits under plans that are generally available to all employees of the Company who meet plan eligibility requirements. Our retirement plans include our 401(k) Plan, Deferred Compensation Plan and Pension Plan (which is frozen). Executive officers are eligible to participate in these plans on the same basis as other employees in accordance with the terms of the plans.
Under the 401(k) Plan, the Company makes an annual contribution to each eligible employee’s plan account equal to 2% of an employee’s total compensation (subject to a six-year vesting schedule) and a matching contribution equal to 100% of an employee’s first 3% of pre-tax contributions and 50% of the employee’s next 2% of pre-tax contributions.
Our Deferred Compensation Plan allows certain employees to elect to defer a portion of their base salaries and annual cash incentive compensation and also allows us to provide make-up benefits to our executive officers for any reduction in benefits under our 401(k) Plan due to limitations on contributions to the plan imposed by the Internal Revenue Code.
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Compensation Discussion and Analysis
Eligibility to participate in our tax-qualified defined benefit Pension Plan was frozen in 2007. Benefit accruals under the Pension Plan were frozen effective as of January 1, 2014 and no additional benefits will accrue to participants after that date, including for Mr. Scudder, who is the only named executive officer who participates in the plan. Less than 25% of our employees currently participate in the Pension Plan.
We provide limited perquisites to our named executive officers, which the Compensation Committee believes are reasonable and within competitive practices.
These perquisites include a vehicle policy that provides a car allowance to our named executive officers, other than our Chief Executive Officer, who receives Company-provided automobile transportation for business purposes in lieu of a car allowance.officers. We provide a mobile telephone stipend to our named executive officers reimburse them for various subscriptions and industry, trade and professional organization dues and alsowe reimburse certain of them for a portion of their country club dues when the membership is used for business purposes. For our Chief Executive Officer, we also provide security and financial planning services.
| |
| First Midwest Bancorp, Inc. |
Compensation Discussion and Analysis
We maintain stock ownership guidelines for our executive officers. The purpose of these guidelines is to further align the interests of our management team and our stockholders. We believe our stock ownership guidelines are significant and reinforce our desire for executives to retain a meaningful portion of equity. The guidelines for our named executive officers are as follows:
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Position |
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| Stock Ownership Guidelines | |
Chief Executive Officer | | 5x base salary |
| | 3x base salary |
Chief Financial Officer | | 2x base salary |
Other Named Executive Officers | | 2x base salary |
Our Chief Executive Officer, President, Chief Financial Officer and other named executive officers have met these guidelines, other than Mr. Jamieson who joined the Company in 2016 and is in the process of accumulating shares to comply with our stock ownership guidelines. It is expected that Mr. Jamieson will satisfy our stock ownership guidelines in 2020. For purposes of the guidelines, we include shares of common stock and preferred stock owned directly or indirectly by the executive and his spouse and minor children and unvested restricted stock.
Clawback, Anti-Pledging, Anti-Hedging and Other Policies
We have clawback provisions in the employment agreements with our named executive officers that allow us to recover cash bonuses and other incentive compensation under certain circumstances. Our 2018 Stock and Incentive Plan also includes clawback provisions. Additionally, we have a policy that prohibits our employees, including our named executive officers, from pledging or hedging our Common Stockcommon stock or engaging in short sales and other short-term, speculative trading in our Common Stock.common stock.
Risk Assessment of Executive Compensation Program
Each year, our Chief Risk Officer performs an executive compensation program risk assessment and presents the assessment results to the Compensation Committee. The Committee reviews the results and discusses the risk assessment with both our Chief Risk Officer and the Committee’s independent compensation consultant. This risk assessment allows our Compensation Committee to confirm that our executive compensation program is designed such that executive officers are not encouraged to take excessive or imprudent risks to enhance their compensation. As part of its risk assessment process in 2019,2020, the Compensation Committee confirmed the following:
| ◆ |
| The risks associated with the Company’s compensation plans for all employees are appropriately identified and managed by the Company. |
| ◆ |
| The Company’s compensation plans for all employees do not create risks that are reasonably likely to have a material adverse effect on the Company as a whole. |
| ◆ |
| The Company’s incentive compensation policies do not undermine the safety and soundness of the Company by encouraging employees to take imprudent risks. |
| ◆ |
| The Company’s compensation plans for all employees are compatible with effective internal controls and risk management and are supported by strong and effective corporate governance practices. |
| ◆ | Plans subject to explicit legal or regulatory requirements are reviewed by our legal and compliance teams to confirm adherence to applicable laws and regulations. |
| |
2021 Proxy Statement | 75 |
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Compensation Discussion and Analysis
As a result of the December 2017 enactment of the Tax Cuts and Jobs Act of 2017, Section 162(m) of the Internal Revenue Code was amended, effective January 1, 2018, to limit the ability of public companies to deduct for federal income tax purposes compensation in excess of $1 million paid to any individual who is (or after 2016 was) the chief executive officer or other named executive officer of the company, except for certain grandfathered amounts. Prior to amendment by the Tax Cuts and Jobs Act, this deduction limitation did not apply to amounts that qualified as performance-based compensation, and we typically structured our annual cash incentive compensation and performance share awards to qualify as performance-based compensation under Section 162(m). Our Compensation Committee determines the compensation of our executive officers consistent with our compensation philosophy, which promotes a pay-for-performancepay for performance environment intended to create stockholder value, and believes the benefit of this approach outweighs deductibility limitations. In reaching decisions on executive compensation, our Compensation Committee considers the tax and accounting consequences, including that compensation (including performance-based compensation) in excess of $1 million paid to covered executive officers in calendar year 2020 generally will not be deductible for federal income tax purposes under Section 162(m) of the Internal Revenue Code. As a result, the Compensation Committee will continue to have the discretion to approve compensation although its deductibility may be limited.
Employment and Restrictive Covenant Agreements with Our Executive Officers
We have entered into employment agreements with certain members of our senior management, including our named executive officers. The Compensation Committee has determined that the terms of the agreements are consistent with competitive practices and are important to attracting and retaining high caliber executive talent. The agreements describe the executive’s position, compensation and benefits, including severance payments in the event of a termination of employment. The agreements also impose confidentiality, non-solicitation and non-disparagement obligations on the executive. In the event of a termination of employment by the Company without cause or by the executive officer for good reason prior to or following a change-in-control of the Company, severance benefits are triggered. Certain aspects of these agreements for our named executive officers are detailed in the tables and narrative following this Compensation Discussion and Analysis.
The employment agreements do not provide for walk-away rights upon a change-in-control or any tax gross-up payments relating to severance benefits following a change-in-control. In addition, our named executive officers are bound by Confidentiality and Restrictive Covenant Agreements that include confidentiality, non-disparagement and non-solicitation covenants. The duty to maintain the confidentiality of the Company’s confidential information generally continues indefinitely, the non-disparagement covenants apply for two years after termination of employment for Messrs. Scudder and Sander and one year after termination for our other executive officers and the non-solicitation covenants apply for two years after termination of employment for Mr. Scudder, eighteen months after termination (subject to extension to two years if termination occurs in connection with or following a change-in-control) for Mr. Sander and one year after termination for our other executive officers. Additionally, Messrs. Scudder and Sander are subject to non-competition provisions, which apply for two years after termination of employment for Mr. Scudder and one year after termination (subject to extension to two years if termination occurs in connection with or following a change-in-control) for Mr. Sander.
| |
| First Midwest Bancorp, Inc. |
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis that appears in this Proxy Statement. Based on this review and discussion, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.
| | |
Barbara A. Boigegrain (Chair) | Kathryn J. Hayley | |
Peter J. Henseler | Ellen A. Rudnick | |
Michael J. Small |
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| Members, Compensation Committee | |
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20192020 Summary Compensation Table
The table and explanatory notes below summarize the total compensation for the years 2020, 2019 2018 and 20172018 paid to or earned by our named executive officers.
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| Incentive Plan |
| Compensation |
| All Other |
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| | | | | | | | Stock | | Incentive Plan | | Compensation | | All Other | | | ||||||||||||||
Principal Position |
| Year |
| Salary |
| Bonus(1) |
| Awards(2) |
| Compensation(3) |
| Earnings(4) |
| Compensation(5) |
| Total | | Year | | Salary | | Bonus | | Awards(1) | | Compensation(2) | | Earnings(3) | | Compensation(4) | | Total | ||||||||||||||
Michael L. Scudder |
| 2019 |
| $ | 872,147 |
| $ | — |
| $ | 1,691,145 |
| $ | 936,755 |
| $ | 184,332 |
| $ | 265,258 |
| $ | 3,949,637 | | 2020 | | $ | 896,854 | | $ | — | | $ | 1,467,809 | | $ | 675,000 | | $ | 148,118 | | $ | 215,865 | | $ | 3,403,646 |
Chairman and Chief |
| 2018 |
| 850,000 |
| — |
| 1,315,961 |
| 722,500 |
| 226,790 |
| 319,966 |
| 3,435,217 | | 2019 | | | 872,147 | | | — | | | 1,691,145 | | | 936,755 | | | 179,147 | | | 237,570 | | | 3,916,764 | |||||||
Executive Officer |
| 2017 |
| 846,000 |
| — |
| 1,442,993 |
| 624,750 |
| 272,472 |
| 181,053 |
| 3,367,268 | | 2018 | |
| 850,000 | |
| — | |
| 1,315,961 | | | 722,500 | | | — | | | 293,500 | |
| 3,181,961 | |||||||
Mark G. Sander |
| 2019 |
| $ | 672,370 |
| $ | — |
| $ | 965,623 |
| $ | 505,725 |
| $ | 115,712 |
| $ | 159,706 |
| $ | 2,419,136 | | 2020 | | $ | 692,432 | | $ | — | | $ | 868,583 | | $ | 364,875 | | $ | — | | $ | 162,303 | | $ | 2,088,193 |
President and Chief |
| 2018 |
| 655,000 |
| — |
| 824,473 |
| 425,750 |
| 105,997 |
| 180,617 |
| 2,191,837 | | 2019 | | | 672,370 | | | — | | | 965,623 | | | 505,725 | | | — | | | 159,706 | | | 2,303,424 | |||||||
Operating Officer |
| 2017 |
| 645,941 |
| — |
| 853,089 |
| 417,235 |
| 72,150 |
| 127,626 |
| 2,116,041 | | 2018 | |
| 655,000 | | | — | | | 824,473 | | | 425,750 | | | — | | | 180,617 | |
| 2,085,840 | |||||||
Patrick S. Barrett |
| 2019 |
| $ | 541,722 |
| $ | — |
| $ | 486,862 |
| $ | 318,581 |
| $ | 6,500 |
| $ | 103,372 |
| $ | 1,457,037 | | 2020 | | $ | 557,920 | | $ | — | | $ | 456,324 | | $ | 210,000 | | $ | — | | $ | 99,510 | | $ | 1,323,754 |
EVP and Chief |
| 2018 |
| 526,769 |
| — |
| 453,703 |
| 273,900 |
| 5,246 |
| 407,495 |
| 1,667,113 | | 2019 | | | 541,722 | | | — | | | 486,862 | | | 318,581 | | | — | | | 103,372 | | | 1,450,537 | |||||||
Financial Officer |
| 2017 |
| 504,000 |
| 485,000 |
| 1,590,966 |
| 262,200 |
| 2,534 |
| 118,808 |
| 2,963,508 | | 2018 | | | 526,769 | | | — | | | 453,703 | | | 273,900 | | | — | | | 407,495 | | | 1,661,867 | |||||||
Michael W. Jamieson |
| 2019 |
| $ | 475,660 |
| $ | — |
| $ | 429,740 |
| $ | 264,100 |
| $ | 23,229 |
| $ | 76,428 |
| $ | 1,269,157 | | 2020 | | $ | 492,202 | | $ | — | | $ | 382,778 | | $ | 185,250 | | $ | — | | $ | 86,474 | | $ | 1,146,704 |
EVP and Director, |
| 2018 |
| 445,923 |
| — |
| 375,156 |
| 234,675 |
| 14,481 |
| 64,040 |
| 1,134,275 | | 2019 | | | 475,660 | | | — | | | 429,740 | | | 264,100 | | | — | | | 76,428 | | | 1,245,928 | |||||||
Commercial Banking, |
| 2017 |
| 439,231 |
| — |
| 339,356 |
| 176,176 |
| 1,427 |
| 66,347 |
| 1,022,537 | | 2018 | |
| 445,923 | | | — | | | 375,156 | | | 234,675 | | | — | | | 64,040 | |
| 1,119,794 | |||||||
First Midwest Bank |
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Thomas M. Prame |
| 2019 |
| $ | 372,436 |
| $ | — |
| $ | 296,810 |
| $ | 247,250 |
| $ | 3,394 |
| $ | 49,782 |
| $ | 969,672 | | 2020 | | $ | 396,790 | | $ | — | | $ | 341,944 | | $ | 217,500 | | $ | — | | $ | 55,174 | | $ | 1,011,408 |
EVP and Director, |
| 2018 |
| 354,654 |
| — |
| 261,103 |
| 150,732 |
| 2,690 |
| 50,338 |
| 819,517 | | 2019 | | | 372,436 | | | — | | | 296,810 | | | 247,250 | | | — | | | 49,782 | | | 966,278 | |||||||
Consumer Banking, |
| 2017 |
| 345,430 |
| — |
| 284,294 |
| 140,140 |
| 1,947 |
| 42,423 |
| 814,234 | | 2018 | |
| 354,654 | | | — | | | 261,103 | | | 150,732 | | | — | | | 50,338 | |
| 816,827 | |||||||
First Midwest Bank |
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| (1) |
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| Amounts represent the aggregate grant-date fair value of restricted stock and performance share awards granted under our |
| (2) |
| Amounts represent cash bonuses paid under our |
| (3) |
| For Mr. Scudder, who is the only named executive officer who participates in our Pension |
| |
| First Midwest Bancorp, Inc. |
Executive Compensation Tables
| (4) |
| Amounts represent the following: |
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Contributions to Defined Contribution Retirement Plans, Perquisites and Dividends | ||||||||||||||||||||||||||||||||||||
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Contributions to Defined Contribution Retirement Plans and Perquisites | Contributions to Defined Contribution Retirement Plans and Perquisites | |||||||||||||||||||||||||||||||||||
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Name |
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| Plan(a) |
| Plan(b) |
| Benefits(c) |
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| Total | | Year | | Plan(a) | | Plan(b) | | Benefits(c) | | | | Shares(d) | | Total | ||||||||
Michael L. Scudder |
| 2019 |
| $ | 16,800 |
| $ | 89,972 |
| $ | 87,162 | (e) |
| $ | 71,324 |
| $ | 265,258 | | 2020 | | $ | 17,100 | | $ | 95,766 | | $ | 24,282 | (e) | | $ | 78,717 | | $ | 215,865 |
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| 2018 |
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| 16,500 |
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| 122,866 |
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| 109,697 | (e) |
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| 70,903 |
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| 319,966 | ||||||||||||||||||
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| 2017 |
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| 16,200 |
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| 65,670 |
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| 49,701 | (e) |
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| 49,482 |
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| 181,053 | ||||||||||||||||||
| | 2019 | | | 16,800 | | | 89,972 | | | 59,474 | (e) | | | 71,324 | | | 237,570 | ||||||||||||||||||
| | 2018 | |
| 16,500 | | | 122,866 | | | 83,231 | (e) | | | 70,903 | |
| 293,500 | ||||||||||||||||||
Mark G. Sander |
| 2019 |
| $ | 16,800 |
| $ | 65,005 |
| $ | 30,079 |
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| $ | 47,822 |
| $ | 159,706 | | 2020 | | $ | 17,100 | | $ | 67,456 | | $ | 25,863 | | | $ | 51,884 | | $ | 162,303 |
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| 2018 |
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| 16,500 |
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| 82,418 |
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| 34,454 |
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| 47,245 |
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| 180,617 | ||||||||||||||||||
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| 2017 |
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| 16,200 |
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| 40,868 |
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| 36,335 |
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| 34,223 |
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| 127,626 | ||||||||||||||||||
| | 2019 | | | 16,800 | | | 65,005 | | | 30,079 | | | | 47,822 | | | 159,706 | ||||||||||||||||||
| | 2018 | |
| 16,500 | | | 82,418 | | | 34,454 | | | | 47,245 | |
| 180,617 | ||||||||||||||||||
Patrick S. Barrett |
| 2019 |
| $ | 16,800 |
| $ | 36,810 |
| $ | 32,607 |
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| $ | 17,155 |
| $ | 103,372 | | 2020 | | $ | 17,100 | | $ | 27,034 | | $ | 11,937 | | | $ | 43,439 | | $ | 99,510 |
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| 2018 |
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| 16,500 |
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| 10,965 |
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| 380,030 | (f) |
|
| — |
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| 407,495 | ||||||||||||||||||
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| 2017 |
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| — |
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| 46,800 |
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| 72,008 | (f) |
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| — |
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| 118,808 | ||||||||||||||||||
| | 2019 | | | 16,800 | | | 36,810 | | | 32,607 | | | | 17,155 | | | 103,372 | ||||||||||||||||||
| | 2018 | | | 16,500 | | | 10,965 | | | 380,030 | (f) | | | — | | | 407,495 | ||||||||||||||||||
Michael W. Jamieson |
| 2019 |
| $ | 16,800 |
| $ | 15,534 |
| $ | 33,257 |
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| $ | 10,837 |
| $ | 76,428 | | 2020 | | $ | 17,100 | | $ | 34,351 | | $ | 23,204 | | | $ | 11,819 | | $ | 86,474 |
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| 2018 |
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| 16,500 |
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| 6,942 |
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| 35,905 |
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| 4,693 |
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| 64,040 | ||||||||||||||||||
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| 2017 |
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| — |
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| 36,540 |
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| 27,878 |
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| 1,929 |
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| 66,347 | ||||||||||||||||||
| | 2019 | | | 16,800 | | | 15,534 | | | 33,257 | | | | 10,837 | | | 76,428 | ||||||||||||||||||
| | 2018 | | | 16,500 | | | 6,942 | | | 35,905 | | | | 4,693 | | | 64,040 | ||||||||||||||||||
Thomas M. Prame |
| 2019 |
| $ | 16,800 |
| $ | 9,251 |
| $ | 10,919 |
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| $ | 12,812 |
| $ | 49,782 | | 2020 | | $ | 17,100 | | $ | 12,330 | | $ | 11,450 | | | $ | 14,294 | | $ | 55,174 |
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| 2018 |
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| 16,500 |
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| 9,046 |
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| 12,213 |
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| 12,579 |
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| 50,338 | ||||||||||||||||||
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| 2017 |
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| 16,200 |
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| 3,890 |
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| 12,475 |
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| 9,858 |
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| 42,423 | ||||||||||||||||||
| | 2019 | | | 16,800 | | | 9,251 | | | 10,919 | | | | 12,812 | | | 49,782 | ||||||||||||||||||
| | 2018 | | | 16,500 | | | 9,046 | | | 12,213 | | | | 12,579 | | | 50,338 | ||||||||||||||||||
| (a) |
| The Company maintains |
| (b) |
| The Company maintains the Deferred Compensation Plan as its nonqualified retirement plan. This plan provides for a tax-deferred vehicle to accommodate contributions that are otherwise limited and not able to be made to our 401(k) Plan, as well as voluntary participant contributions. The amount in this column reflects matching Company contributions to the 401(k) Plan and the Company’s 2% automatic contribution for any amount in excess of the maximum 401(k) Plan limit. |
| (c) |
| Represents amounts paid to the named executive officer for an annual automobile allowance and amounts paid by the Company on behalf of or reimbursed to the named executive officer for other customary perquisites, including mobile telephone usage |
| (d) |
| Represents accrued dividends paid on performance share and restricted stock awards that vested in |
| (e) |
| Includes $9,816 in 2020, $34,776 in 2019, and $63,802 in 2018 (includes supplemental security for 2018) |
| (f) |
| For Mr. Barrett, also includes $366,469 in 2018 |
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2021 Proxy Statement | 79 |
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Executive Compensation Tables
20192020 Grants of Plan-Based Awards Table
The following table provides information with regard to the stock awards granted during 20192020 (and reported as Stock Awards in the Summary Compensation Table) and the annual cash incentive compensation award opportunity for 20192020 for our named executive officers.
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| Equity Incentive Plan Awards(2) |
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| | | | | | | | | | | | | | | | | | | Stock | | Grant | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | Awards: | | Date Fair | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | Number of | | Value of | |||||||||||||||||||||||
| | | | Estimated Possible Payouts Under | | Estimated Possible Payouts Under | | Shares of | | Stock and | ||||||||||||||||||||||||||||||||||
| | Grant | | Non-Equity Incentive Plan Awards(1) | | Equity Incentive Plan Awards(2) | | Stock or | | Option | ||||||||||||||||||||||||||||||||||
Name |
| Date |
| Threshold |
| Target |
| Maximum |
| Threshold |
| Target |
| Maximum |
| Units(3) |
| Awards(4) |
| Date |
| Threshold |
| Target |
| Maximum |
| Threshold |
| Target |
| Maximum |
| Units(3) |
| Awards(4) | ||||||||
Michael L. |
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| $ | 437,750 |
| $ | 875,500 |
| $ | 1,751,000 |
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| $ | 450,000 |
| $ | 900,000 |
| $ | 1,800,000 | | | | | | | | | | | |
Scudder |
| 2/20/2019 |
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| 11,152 |
| 44,606 |
| 89,212 |
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| $ | 1,086,223 |
| 2/19/2020 | | | | | | | | | |
| 11,970 |
| 47,878 |
| 95,756 | | |
| $ | 927,816 |
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| 2/20/2019 |
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| 25,879 |
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| 604,922 | ||||||||||||||||||||||
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| 2/19/2020 | | | | | | | | | | | | | | | |
| 26,115 | |
| 539,993 | ||||||||||||||||||||||
Mark G. |
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| $ | 236,250 |
| $ | 472,500 |
| $ | 945,000 |
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| | |
| $ | 243,250 |
| $ | 486,500 |
| $ | 973,000 | | | | | | | | | | | |
Sander |
| 2/20/2019 |
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| 5,776 |
| 23,102 |
| 46,204 |
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| $ | 560,628 |
| 2/19/2020 | | | | | | | | | |
| 6,722 |
| 26,889 |
| 53,778 | | |
| $ | 521,077 |
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| 2/20/2019 |
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| 17,326 |
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| 404,995 | ||||||||||||||||||||||
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| 2/19/2020 | | | | | | | | | | | | | | | |
| 16,806 | |
| 347,506 | ||||||||||||||||||||||
Patrick S. |
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| $ | 135,950 |
| $ | 271,900 |
| $ | 543,800 |
|
|
|
|
|
|
|
|
|
|
| | |
| $ | 140,000 |
| $ | 280,000 |
| $ | 560,000 | | | | | | | | | | | |
Barrett |
| 2/20/2019 |
|
|
|
|
|
|
|
|
|
| 2,327 |
| 9,306 |
| 18,612 |
|
|
| $ | 225,833 |
| 2/19/2020 | | | | | | | | | |
| 2,708 |
| 10,833 |
| 21,666 | | | | $ | 209,931 |
|
| 2/20/2019 |
|
|
|
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|
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|
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|
|
|
|
|
| 11,167 |
|
| 261,029 | ||||||||||||||||||||||
| | 2/19/2020 | | | | | | | | | | | | | | | | | 11,916 | | | 246,393 | ||||||||||||||||||||||
Michael W. |
|
|
| $ | 120,000 |
| $ | 240,000 |
| $ | 480,000 |
|
|
|
|
|
|
|
|
|
|
| | |
| $ | 123,500 |
| $ | 247,000 |
| $ | 494,000 | | | | | | | | | | | |
Jamieson |
| 2/20/2019 |
|
|
|
|
|
|
|
|
|
| 2,054 |
| 8,214 |
| 16,428 |
|
|
| $ | 199,333 |
| 2/19/2020 | | | | | | | | | |
| 2,389 |
| 9,556 |
| 19,112 | | |
| $ | 185,183 |
|
| 2/20/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 9,857 |
|
| 230,407 | ||||||||||||||||||||||
|
| 2/19/2020 | | | | | | | | | | | | | | | |
| 9,556 | |
| 197,594 | ||||||||||||||||||||||
Thomas M. |
|
|
| $ | 93,750 |
| $ | 187,500 |
| $ | 375,000 |
|
|
|
|
|
|
|
|
|
|
| | |
| $ | 100,000 |
| $ | 200,000 |
| $ | 400,000 | | | | | | | | | | | |
Prame |
| 2/20/2019 |
|
|
|
|
|
|
|
|
|
| 1,203 |
| 4,813 |
| 9,626 |
|
|
| $ | 116,799 |
| 2/19/2020 | | | | | | | | | |
| 1,935 |
| 7,738 |
| 15,476 | | |
| $ | 149,953 |
|
| 2/20/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 7,701 |
|
| 180,011 | ||||||||||||||||||||||
| | 2/19/2020 | | | | | | | | | | | | | | | | | 9,285 | | | 191,991 | ||||||||||||||||||||||
| (1) |
| Amounts reflect the range of possible payouts under our annual cash incentive plan based on a combination of Company performance and individual performance rating assumptions, if applicable. For additional information, seeCompensation Discussion and Analysis— |
| (2) |
| Awards represent the range of estimated possible payouts granted in the form of performance shares under our |
| (3) |
| Awards represent restricted stock awards granted under our |
| (4) |
| Amounts represent the aggregate grant-date fair value of stock awards, including performance shares and restricted stock awards, granted under our |
|
|
| |
| First Midwest Bancorp, Inc. |
Executive Compensation Tables
20192020 Outstanding Equity Awards at Fiscal Year-End Table
The following table provides information regarding unvested stock awards held by our named executive officers as of December 31, 2019.2020. All values in the table are based on a market value for our Common Stockcommon stock of $23.06,$15.92, which was the closing price of our stock on December 31, 2019,2020, the last trading day of the year, as reported by the NASDAQ Stock Market. Information regarding when unvested awards are scheduled to vest is set forth in the notes to the table. Vesting also is subject to continued employment and acceleration under certain circumstances. As of December 31, 2019,2020, no stock options remained outstanding under our equity compensation plans.
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| Option Awards(1) |
| Stock Awards | ||||||||||||||||||||||||
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| Equity |
| Equity | ||||||||||||||
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| Incentive |
| Incentive Plan | ||||||||||||||
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| Plan Awards: |
| Awards: | ||||||||||||||
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| Market |
| Number of |
| Market or | ||||||||||||||
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| Number of |
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| Value of |
| Unearned |
| Payout Value of | ||||||||||||||
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| Securities |
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| Number of |
| Shares or |
| Shares, Units |
| Unearned | ||||||||||||||
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| Underlying |
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| �� | Shares or |
| Units of |
| or Other |
| Shares, Units | ||||||||||||||
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| Unexercised |
| Option |
| Option |
| Units of Stock |
| Stock that |
| Rights that |
| or Other Rights | ||||||||||||||
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| Options |
| Exercise |
| Expiration |
| that Have Not |
| Have Not |
| Have Not |
| that Have Not | ||||||||||||||
| | | | | | | | | | | ||||||||||||||||||
| | Stock Awards(1) | ||||||||||||||||||||||||||
| | | | | | | Equity | | Equity | |||||||||||||||||||
| | | | | | | Incentive | | Incentive Plan | |||||||||||||||||||
| | | | | | | Plan Awards: | | Awards: | |||||||||||||||||||
| | | | | Market | | Number of | | Market or | |||||||||||||||||||
| | | | | Value of | | Unearned | | Payout Value of | |||||||||||||||||||
| | | Number of | | Shares or | | Shares, Units | | Unearned | |||||||||||||||||||
| | | Shares or | | Units of | | or Other | | Shares, Units | |||||||||||||||||||
| | | Units of Stock | | Stock that | | Rights that | | or Other Rights | |||||||||||||||||||
| | | that Have Not | | Have Not |
| Have Not | | that Have Not | |||||||||||||||||||
Name |
| Exercisable |
| Price |
| Date |
| Vested |
| Vested |
| Vested |
| Vested |
|
| Vested | | Vested |
| Vested | | Vested | |||||
Michael L. Scudder |
| — |
|
|
|
|
|
| 11,339 | (2) | $ | 261,477 |
| 34,061 | (9) | $ | 785,447 |
| 9,712 | (2) | $ | 154,615 |
| 41,200 | (9)(7) | $ | 655,904 | |
|
|
|
|
|
|
|
|
| 17,031 | (3) |
| 392,735 |
| 44,606 | (10)(5) |
| 1,028,614 | |||||||||||
|
|
|
|
|
|
|
|
| 25,879 | (4)(5) |
| 596,770 |
|
|
|
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| |||||||||||
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|
|
|
|
|
| 9,994 | (6) |
| 230,462 |
|
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| |||||||||||
|
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|
|
|
|
| 19,422 | (7) |
| 447,871 |
|
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| |||||||||||
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|
|
|
| 34,423 | (8) |
| 793,794 |
|
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|
|
| |||||||||||
|
| 22,948 | (3) |
| 365,332 |
| 47,878 | (10) | | 762,218 | ||||||||||||||||||
| |
| 8,515 | (4) |
| 135,559 | | | | | | |||||||||||||||||
| |
| 18,733 | (5)(7) |
| 298,229 | | | | | | |||||||||||||||||
| |
| 24,176 | (6)(7) |
| 384,882 | | | | | | |||||||||||||||||
| | 26,115 | (8) | | 415,751 | | | | | | ||||||||||||||||||
Mark G. Sander |
| — |
|
|
|
|
|
| 8,998 | (2) | $ | 207,494 |
| 18,373 | (9) | $ | 423,681 |
| 6,486 | (2) | $ | 103,257 |
| 23,102 | (9) | $ | 367,784 | |
|
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|
|
|
|
|
|
| 13,780 | (3) |
| 317,767 |
| 23,102 | (10) |
| 532,732 | |||||||||||
|
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|
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| 17,326 | (4) |
| 399,538 |
|
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| |||||||||||
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| 6,687 | (6) |
| 154,202 |
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| |||||||||||
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| 12,968 | (7) |
| 299,042 |
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| |||||||||||
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| 15,916 | (8) |
| 367,023 |
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| |||||||||||
| |
| 10,610 | (3) |
| 168,911 |
| 26,889 | (10) | | 428,073 | |||||||||||||||||
| |
| 6,890 | (4) |
| 109,689 | | | | | | |||||||||||||||||
| |
| 9,187 | (5) |
| 146,257 | | | | | | |||||||||||||||||
| | 17,326 | (6) | | 275,830 | | | | | | ||||||||||||||||||
| |
| 16,806 | (8) |
| 267,552 | | | | | | |||||||||||||||||
Patrick S. Barrett |
| — |
|
|
|
|
|
| 4,202 | (11) | $ | 96,898 |
| 8,463 | (9) | $ | 195,157 |
| 15,432 | (3) | $ | 245,677 |
| 9,306 | (9) | $ | 148,152 | |
|
|
|
|
|
|
|
|
| 16,220 | (12) |
| 374,033 |
| 9,306 | (10) |
| 214,596 | |||||||||||
|
|
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|
|
|
|
|
| 9,310 | (3) |
| 214,689 |
|
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| |||||||||||
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| 11,167 | (4) |
| 257,511 |
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| |||||||||||
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| 23,149 | (8) |
| 533,816 |
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| |||||||||||
| |
| 4,655 | (4) |
| 74,108 |
| 10,833 | (10) | | 172,461 | |||||||||||||||||
| | 4,232 | (5) | | 67,373 | | | | | | ||||||||||||||||||
| | 11,167 | (6) | | 177,779 | | | | | | ||||||||||||||||||
| | 11,916 | (8) | | 189,703 | | | | | | ||||||||||||||||||
Michael W. Jamieson |
| — |
|
|
|
|
|
| 4,089 | (11) | $ | 94,292 |
| 7,165 | (9) | $ | 165,225 |
| 3,555 | (3) | $ | 56,596 |
| 8,214 | (9) | $ | 130,767 | |
|
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|
|
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|
|
| 7,523 | (3) |
| 173,480 |
| 8,214 | (10) |
| 189,415 | |||||||||||
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| 9,857 | (4) |
| 227,302 |
|
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| |||||||||||
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|
|
| 5,333 | (8) |
| 122,979 |
|
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| |||||||||||
|
| 3,761 | (4) |
| 59,875 |
| 9,556 | (10) |
| 152,132 | ||||||||||||||||||
| |
| 3,583 | (5) |
| 57,041 | | | | | | |||||||||||||||||
| | 9,857 | (6) | | 156,923 | | | | | | ||||||||||||||||||
| | 9,556 | (8) | | 152,132 | | | | | | ||||||||||||||||||
Thomas M. Prame |
| — |
|
|
|
|
|
| 3,528 | (11) | $ | 81,356 |
| 4,274 | (9) | $ | 98,558 |
| 1,160 | (2) | $ | 18,467 |
| 4,813 | (9) | $ | 76,623 | |
|
|
|
|
|
|
|
|
| 5,983 | (3) |
| 137,968 |
| 4,813 | (10) |
| 110,988 | |||||||||||
|
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|
|
|
|
|
|
| 7,701 | (4) |
| 177,585 |
|
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| |||||||||||
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|
| 1,187 | (6) |
| 27,372 |
|
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| |||||||||||
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|
|
| 2,321 | (7) |
| 53,522 |
|
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| |||||||||||
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|
|
| 4,242 | (8) |
| 97,821 |
|
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| |||||||||||
| | 2,828 | (3) | | 45,022 | | 7,738 | (10) | | 123,189 | ||||||||||||||||||
| | 2,991 | (4) | | 47,617 | | | | | | ||||||||||||||||||
| | 2,137 | (5) | | 34,021 | | | | | | ||||||||||||||||||
| | 7,701 | (6) | | 122,600 | | | | | | ||||||||||||||||||
| |
| 9,285 | (8) |
| 147,817 |
| | |
| | |||||||||||||||||
| (1) |
| None of our named executive officers has been granted a stock option award since 2011. As of December 31, |
| (2) | Represents the third tranche of performance shares earned at the completion of a three-year performance period that ended on December 31, 2018. The third tranche vested on March 15, 2021. See note 5, below, for additional information regarding the vesting of earned performance shares. |
| (3) | Represents the second and third tranche of performance shares earned at the completion of a three-year performance period that ended on December 31, 2019. The second tranche vested on March 15, 2021 and the third tranche is |
| |
2021 Proxy Statement | 81 |
Executive Compensation Tables
|
| (4) | Restricted stock awards vest over three years in two equal installments beginning two years from the date of grant (subject to continued employment and accelerated vesting under certain circumstances). Represents restricted stock awards granted in |
|
|
| (5) | Represents performance shares earned at the completion of a three-year performance period that ended on December 31, 2020. The final number of shares awarded was based on the following metrics: TSR relative to our peer group at 0% of target and CRATCE, at 100% of target. These awards vested on March 15, 2021. For additional information, |
| (6) | |
|
|
Executive Compensation Tables
| Represents restricted stock awards granted in 2019, the first tranche of which |
| (7) |
| Includes the special make-up grant awarded to Mr. Scudder in 2019, which consisted of 3,406 shares of restricted stock and 3,406 performance shares. These shares were issued to correct a clerical error in the number of shares that Mr. Scudder should have received in 2018. The grant has the same terms, vesting periods and performance conditions as those made in 2018. For the restricted stock portion, the first tranche vested on February 20, 2020, and the second tranche |
|
|
| (8) |
| Represents restricted stock awards granted in 2020, the |
| (9) |
|
|
| Represents performance shares that may be earned upon completion of a three-year performance period ending on December 31, 2021 if performance levels (reflected at target in this table) are achieved using the following two metrics: TSR relative to our peer group and |
| (10) |
| Represents |
|
|
| |
| First Midwest Bancorp, Inc. |
Executive Compensation Tables
20192020 Option Exercises and Stock Vested Table
The following table provides information with respect to the value realized by our named executive officers during 20192020 as a result of the exercise of non-qualified stock options and the vesting of restricted stock and performance share awards, based on the average of the high and low sales price of a share of Common Stockcommon stock on the NASDAQ Stock Market on the exercise or vesting date, as applicable.
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| ||||||||||
|
| Option Awards |
| Stock Awards | ||||||||||||||||
|
| Number of |
|
|
| Number of |
|
| ||||||||||||
|
| Shares Acquired |
| Value Realized |
| Shares Acquired |
| Value Realized | ||||||||||||
| | | | | | | | | | | ||||||||||
| | Option Awards | | Stock Awards | ||||||||||||||||
| | Number of | | | | Number of | | | ||||||||||||
|
| Shares Acquired |
| Value Realized |
| Shares Acquired |
| Value Realized | ||||||||||||
Name |
| on Exercise |
| on Exercise |
| on Vesting |
| on Vesting | | on Exercise | | on Exercise | | on Vesting | | on Vesting | ||||
Michael L. Scudder |
| — |
| $ | — |
| 54,570 |
| $ | 1,223,536 | | — | | $ | — | | 52,737 | | $ | 878,636 |
Mark G. Sander |
| — |
|
| — |
| 37,612 |
|
| 845,450 | | — | | | — | | 34,364 | |
| 583,354 |
Patrick S. Barrett |
| — |
|
| — |
| 20,423 |
|
| 467,799 | | — | | | — | | 32,793 | | | 602,546 |
Michael W. Jamieson |
| — |
|
| — |
| 9,302 |
|
| 198,312 | | — | | | — | | 9,628 | |
| 186,711 |
Thomas M. Prame |
| — |
|
| — |
| 10,841 |
|
| 245,920 | | — | | | — | | 10,281 | | | 187,360 |
We maintain a noncontributory tax-qualified defined benefit Pension Plan for eligible employees. Eligibility to participate in this plan was frozen in 2007. Benefit accruals under this plan were frozen effective as of January 1, 2014 and no additional benefits will accrue to participants after that date, including for Mr. Scudder, who is the only named executive officer who participates in our Pension Plan.
The amount of the monthly pension benefit under our Pension Plan is based on the average monthly pension-eligible compensation and years of credited service of the participant. Average monthly compensation is the average of the highest eighty-four consecutive months of pay within the last 120 months of service and years of credited service is based on the period of employment with the Company, subject to limitations on service prior to 1980.
Pension-eligible compensation consists of base salary, cash bonuses, incentive compensation and vacation pay, but excludes severance and amounts realized from the exercise of non-qualified stock options and the vesting of restricted stock, restricted stock unit and performance share awards. Pension-eligible compensation is capped by provisions of the Internal Revenue Code applicable to tax-qualified pension plans. For 2019,2020, this limit was $280,000.$285,000. Any amounts that become ineligible due to the Internal Revenue Code limits are used to compute the pension restoration contribution to the Deferred Compensation Plan as discussed further below under the section titled Non-Qualified Deferred Compensation.
Our Pension Plan provides for pension benefits under normal retirement (the attainment of age 65), early retirement (the attainment of age 55 with fifteen or more years of service), termination after five years of service, disability retirement after ten years of service and death before retirement with five or more years of service. A participant may elect to have his or her benefit paid each month in the form of a single life annuity or one of several actuarially equivalent forms of payment, including a lump sum.
Early retirement pension benefits are reduced by 6% for each of the first five years (ages 60‑65)60-65) and by 4% for each of the next five years (ages 55‑60)55-60) that the pension commencement date precedes the normal retirement age of 65.
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|
|
Executive Compensation Tables
20192020 Pension Benefits Table
The following table shows the present value of the accumulated benefit as of December 31, 20192020 payable to each of the named executive officers, including the number of years of service credited to each named executive officer under our Pension Plan determined using interest rate and mortality rate assumptions consistent with those used in our 20192020 audited financial statements included in our Form 10‑K.10-K.
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| Number of |
| Present Value of |
| Payments | ||||||||||||
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| Years Credited |
| Accumulated |
| During Last | ||||||||||||
| | | | | | | | | | | ||||||||||
| | | | Number of | | Present Value of | | Payments | ||||||||||||
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| |
| Years Credited |
| Accumulated |
| During Last | ||||||||||||
Name |
| Plan Name |
| Service |
| Benefit |
| Fiscal Year | | Plan Name | | Service | | Benefit | | Fiscal Year | ||||
Michael L. Scudder |
| Pension Plan |
| 27.75 |
| $ | 913,597 |
| $ | — | | Pension Plan | | 27.75 | | $ | 1,061,716 | | $ | — |
Mark G. Sander* |
| N/A |
| N/A |
|
| N/A |
|
| N/A | | N/A | | N/A | |
| N/A | |
| N/A |
Patrick S. Barrett* |
| N/A |
| N/A |
|
| N/A |
|
| N/A | | N/A | | N/A | | | N/A | | | N/A |
Michael W. Jamieson* |
| N/A |
| N/A |
|
| N/A |
|
| N/A | | N/A | | N/A | |
| N/A | |
| N/A |
Thomas M. Prame* |
| N/A |
| N/A |
|
| N/A |
|
| N/A | | N/A | | N/A | |
| N/A | |
| N/A |
* | The Pension Plan was closed to new participants as of April 1, 2007. Based on the date of hire for Messrs. Sander, Barrett, Jamieson and Prame, they are not eligible to participate in the Pension Plan. |
Non-Qualified Deferred Compensation
We maintain two non-qualified deferred compensation plans, the Deferred Compensation Plan and the Gain Deferral Plan. All of our named executive officers are eligible to participate in our Deferred Compensation Plan. Only Mr. Scudder is eligible to participate in our Gain Deferral Plan because participation in this plan was frozen as of 2005 and, based on their respective dates of hire, Messrs. Sander, Barrett, Jamieson and Prame are not eligible to participate.
Deferred Compensation Plan
The Deferred Compensation Plan is a non-qualified defined contribution deferred compensation plan under which participants are credited with deferred compensation equal to Company contributions and benefits based on amounts that would have been contributed under our 401(k) Plan but for limitations under the Internal Revenue Code. Further, participants may elect to defer up to 100% of base salary and annual cash incentive compensation into the plan. Deferral elections must be made during the initial or annual enrollment period and apply to compensation earned in the following calendar year. The elections remain in effect for each subsequent calendar year until a participant makes a qualifying change. Participant accounts are deemed to be invested in separate investment accounts in an irrevocable rabbi trust under the Deferred Compensation Plan, with similar investment alternatives as those available under our 401(k) Plan, including an investment account deemed invested in shares of our Common Stock.common stock. Participants are able to modify their investment elections at any time, subject to applicable blackout periods.
Gain Deferral Plan
We established the Gain Deferral Plan with the purpose of encouraging stock ownership by certain key executives. In response to the addition of Section 409A of the Internal Revenue Code, participation in the Gain Deferral Plan was frozen on January 1, 2005 and no additional contributions or deferrals may be made under this plan. This plan combined traditional deferred compensation arrangements with stock option exercise transactions by allowing eligible stock option participants to defer to a future date the receipt of shares representing the value realized upon exercise of the underlying stock options. Currently, eightseven stock option participants have amounts credited under this plan, including Mr. Scudder. Deferred amounts are held for each participant in separate individual accounts and the associated Gain Deferral Plan shares are held in an irrevocable rabbi trust. The amounts are denominated and paid in shares of Common Stockcommon stock and are adjusted for dividends as if the dividends were reinvested in shares of Common Stock.common stock.
| |
| First Midwest Bancorp, Inc. |
Executive Compensation Tables
Distributions
Under both the Deferred Compensation Plan and the Gain Deferral Plan, payments begin after termination of employment and are payable at the participant’s election either as a lump sum or in installments over a period not to exceed fifteen years. Earlier payment may be made upon showing of financial hardship to the satisfaction of the Compensation Committee. Distributions are paid in cash under the Deferred Compensation Plan and as in-kind stock distributions under the Gain Deferral Plan. Payments to named executive officers will be delayed as necessary to comply with Section 409A of the Internal Revenue Code.
20192020 Non-Qualified Deferred Compensation Table
The table set forth below summarizes the activity in the Deferred Compensation Plan and Gain Deferral Plan accounts of our named executive officers during 2019.2020.
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| Aggregate | ||||||||||||||||||||||
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| Executive |
| Company |
| Aggregate |
| Withdrawals/ |
| Balance at | ||||||||||||||||||||||
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| Contributions |
| Contributions |
| Earnings in |
| Distributions |
| December 31, | ||||||||||||||||||||||
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| | | | | | | | | | Aggregate | | Aggregate | ||||||||||||||||||||||
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| Executive |
| Company |
| Aggregate |
| Withdrawals/ |
| Balance at | ||||||||||||||||||||||
| | | | Contributions | | Contributions | | Earnings in | | Distributions | | December 31, | ||||||||||||||||||||||
Name |
| Plan Name |
| in 2019(1) |
| in 2019(2) |
| 2019 |
| in 2019 |
| 2019(3)(4) | | Plan Name | | in 2020(1) | | in 2020(2) | | 2020 | | in 2020 | | 2020(3)(4) | ||||||||||
Michael L. Scudder |
| Deferred Comp. Plan |
| $ | 37,040 |
| $ | 89,972 |
| $ | 178,054 |
| $ | — |
| $ | 4,234,679 | | Deferred Comp. Plan | | $ | 36,346 | | $ | 95,766 | | $ | 155,904 | | $ | — | | $ | 5,152,866 |
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| Gain Deferral Plan |
| — |
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| — |
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| 5,185 |
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| — |
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| 234,044 | ||||||||||||||||||
| | Gain Deferral Plan | |
| — | |
| — | |
| 5,778 | |
| — | |
| 165,570 | |||||||||||||||||
Mark G. Sander |
| Deferred Comp. Plan |
| $ | 57,115 |
| $ | 65,005 |
| $ | 115,712 |
| $ | — |
| $ | 1,289,344 | | Deferred Comp. Plan | | $ | 56,135 | | $ | 67,456 | | $ | 59,019 | | $ | — | | $ | 1,604,891 |
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| Gain Deferral Plan |
| N/A |
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| N/A |
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| N/A |
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| N/A |
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| N/A | ||||||||||||||||||
| | Gain Deferral Plan | |
| N/A | |
| N/A | |
| N/A | |
| N/A | |
| N/A | |||||||||||||||||
Patrick S. Barrett |
| Deferred Comp. Plan |
| $ | 15,763 |
| $ | 36,810 |
| $ | 6,500 |
| $ | — |
| $ | 116,614 | | Deferred Comp. Plan | | $ | 1,875 | | $ | 27,034 | | $ | 5,924 | | $ | — | | $ | 134,022 |
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| Gain Deferral Plan |
| N/A |
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| N/A |
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| N/A |
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| N/A |
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| N/A | ||||||||||||||||||
| | Gain Deferral Plan | |
| N/A | |
| N/A | |
| N/A | |
| N/A | |
| N/A | |||||||||||||||||
Michael W. Jamieson |
| Deferred Comp. Plan |
| $ | 217,705 |
| $ | 15,534 |
| $ | 23,229 |
| $ | — |
| $ | 474,794 | | Deferred Comp. Plan | | $ | 242,327 | | $ | 34,351 | | $ | 28,033 | | $ | — | | $ | 893,019 |
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| Gain Deferral Plan |
| N/A |
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| N/A |
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| N/A |
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| N/A |
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| N/A | ||||||||||||||||||
| | Gain Deferral Plan | |
| N/A | |
| N/A | |
| N/A | |
| N/A | |
| N/A | |||||||||||||||||
Thomas M. Prame |
| Deferred Comp. Plan |
| $ | — |
| $ | 9,251 |
| $ | 3,394 |
| $ | — |
| $ | 77,924 | | Deferred Comp. Plan | | $ | — | | $ | 12,330 | | $ | 2,466 | | $ | — | | $ | 70,135 |
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| Gain Deferral Plan |
| N/A |
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| N/A |
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| N/A |
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| N/A |
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| N/A | ||||||||||||||||||
| | Gain Deferral Plan | |
| N/A | |
| N/A | |
| N/A | |
| N/A | |
| N/A | |||||||||||||||||
(1) Executive contributions represent amounts that would have been contributed by the named executive officer under our 401(k) Plan, but for limitations under the Internal Revenue Code, and salary and annual cash incentive compensation the named executive officer has elected to defer.
(2) Company contributions represent amounts that would have been contributed under our tax-qualified benefit plans but for limitations under the Internal Revenue Code. The Company contributions to the Deferred Compensation Plan for each named executive officer are included in the “All Other Compensation” column of the20192020 Summary Compensation Table.
(3) Aggregate balances at December 31, 20192020 reflect amounts accumulated through the named executive officer’s participation in the plans from: (a) participant and Company contributions under the Deferred Compensation Plan and (b) participant contributions only under the Gain Deferral Plan. Our named executive officers have participated in the Deferred Compensation Plan since 1999 for Mr. Scudder, 2011 for Mr. Sander, 2017 for Mr. Barrett, 2017 for Mr. Jamieson and 2012 for Mr. Prame. Mr. Scudder has participated in the Gain Deferral Plan since 2004.
(4) As of December 31, 2019,2020, the portion of the aggregate balances in the Deferred Compensation Plan and Gain Deferral Plan (as applicable) that represent Common Stockcommon stock are as follows: 10,14910,559 shares for Mr. Scudder, -0- shares for Mr. Sander, -0- shares for Mr. Barrett, -0- shares for Mr. Jamieson and 2,1182,203 shares for Mr. Prame.
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Executive Compensation Tables
Potential Payments Upon Termination or Change-in-Control
We have entered into employment agreements and maintain plans covering our named executive officers that will require the Company to provide severance payments in the event of an involuntary termination of employment (other than for cause) or a resignation of employment for good reason both prior to and following a change-in-control of the Company.
Overview
Our employment agreements with each of our named executive officers provide for automatic annual one-year extensions, except for Messrs. Scudder and Sander whose employment agreements provide for automatic two-year extensions every other year. Among other items, the agreements set forth the executive’s title, responsibilities, compensation and severance payments to be made to the executive upon certain terminations of employment. Termination of employment also may impact equity awards that we have granted, as well as benefits payable under our employee benefit plans.
In addition to their employment agreements, our named executive officers are parties to Confidentiality and Restrictive Covenants Agreements with us under which they are subject to confidentiality, non-disparagement, non-solicitation and, in the case of Messrs. Scudder and Sander, non-competition covenants. The restrictive covenants to which our named executive officers are subject are described more fully above underCompensation Discussion and Analysis—Policies, Guidelines and Other Practices—Employment and Restrictive Covenant Agreements with Our Executive Officers.
The following discussion takes each termination of employment situation—voluntary resignation, discharge for cause, discharge without cause, resignation for good reason, death and disability—both prior to and following a change-in-control of the Company, and describes the severance or other additional amounts that the Company would pay or provide to the named executive officer or the officer’s beneficiaries as a result. The discussion below and the amounts shown reflect certain assumptions we have made in accordance with applicable SEC rules. These assumptions are that the termination of employment or change-in-control occurred on December 31, 20192020 and that the value of a share of our Common Stockcommon stock on that day was $23.06,$15.92, which is the closing price of our stock as reported by the NASDAQ Stock Market on December 31, 2019,2020, which was the last trading day of the year.
The following discussion and amounts exclude the payments and benefits that are not enhanced by a termination of employment or change-in-control. These payments and benefits, which are referred to in the following discussion as the executive officer’s “vested benefits,” include:
| ◆ |
| Base salary payable through the date of termination; |
| ◆ |
| Any other cash compensation earned through the date of termination but not paid, including any amounts earned and vested but not paid under our annual cash incentive program; |
| ◆ |
| Benefits accrued under our 401(k) Plan, in which all employees participate, and Pension Plan; |
| ◆ |
| Accrued vacation pay, group health plan continuation and other similar amounts payable when employment terminates under programs applicable to our salaried employees generally; |
| ◆ |
| Balances accrued under our Deferred Compensation Plan and Gain Deferral Plan; and |
| ◆ |
| Restricted stock and performance shares that have vested prior to the employment termination or change-in-control. |
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| First Midwest Bancorp, Inc. |
Executive Compensation Tables
Voluntary Resignation
Prior to age 65, we are not obligated to pay amounts over and above vested benefits in the event of employment termination due to voluntary resignation, and all unearned or unvested restricted stock and performance share awards will lapse and not vest. Following attainment of age 65, in the event of a named executive officer’s retirement, we have provided that, in addition to payment of the executive’s vested benefits:
| ◆ |
| All unvested restricted stock awards, as well as all earned but unvested performance shares, become fully vested; and |
| ◆ |
| A pro-rated portion of all unearned performance shares may vest following the end of the performance periods applicable to the executive’s performance share awards outstanding at the time of retirement and as to which the performance periods have not concluded. The portion of each unearned performance share award that may vest is based on the achievement of the applicable performance goals during the entire performance period, and is calculated by multiplying the target number of performance shares by a fraction, the numerator of which is the number of whole months that have elapsed from the beginning of the applicable performance period to the date of resignation and the denominator of which is 36. |
As of December 31, 2019,2020, none of our named executive officers had attained age 65.
Discharge for Cause
We are not obligated to pay any amounts over and above vested benefits if a named executive officer’s employment terminates because of discharge for cause. If the cause is fraud or embezzlement of funds, benefits under the Gain Deferral Plan are subject to forfeiture. In general, a discharge will be for cause if the executive has intentionally failed to perform his or her duties of employment, engaged in illegal or gross misconduct that harms the Company, has been convicted of a felony involving dishonesty, fraud, theft or financial impropriety or has violated a material requirement of any code of ethics or standard of conduct of the Company.
Death or Disability
We provide our employees, including our named executive officers, with group life and disability insurance coverage. The group life insurance benefit is based on a multiple of base salary, subject to limits contained in the policy. Participants in our group life insurance plan may, if eligible, purchase additional insurance at their own cost. The disability benefit is a monthly benefit, paid until age 65, equal to 60% of base salary at the time of disability. These benefits would be paid to the named executive officer or his beneficiary, in addition to the executive’s vested benefits, in the event of death or disability.
The amount of the payments to our named executive officers assuming death or disability on December 31, 20192020 is set forth in the following table:
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| Life Insurance |
| Monthly |
| Months to |
| Total | ||||||||||||||
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| Life Insurance |
| Monthly |
| Months to |
| Total | ||||||||||||||
Name |
| (Death) Benefit |
| Amount |
| Age 65 |
| Payment | | (Death) Benefit | | Amount | | Age 65 | | Payment | ||||||
Michael L. Scudder |
| $ | 1,000,000 |
| $ | 42,500 |
| 67 |
| $ | 2,847,500 | | $ | 1,751,000 | | $ | 45,000 | | 55 | | $ | 2,475,000 |
Mark G. Sander |
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| 1,000,000 |
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| 32,750 |
| 48 |
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| 1,572,000 | |
| 1,000,000 | |
| 34,750 | | 36 | |
| 1,251,000 |
Patrick S. Barrett |
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| 1,000,000 |
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| 26,400 |
| 108 |
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| 2,851,200 | | | 1,000,000 | | | 28,000 | | 96 | | | 2,688,000 |
Michael W. Jamieson |
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| 894,000 |
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| 22,350 |
| 38 |
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| 849,300 | |
| 480,000 | |
| 24,700 | | 26 | |
| 642,200 |
Thomas M. Prame |
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| 711,000 |
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| 17,775 |
| 180 |
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| 3,199,500 | |
| 10,000 | |
| 20,000 | | 168 | |
| 3,360,000 |
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Executive Compensation Tables
We also have provided for the vesting of unearned or unvested equity awards in the event of the death or disability of the named executive officer as follows:
| ◆ |
| All unvested restricted stock awards, as well as all earned but unvested performance shares, become fully vested; and |
| ◆ |
| A pro-rated portion of all unearned performance shares may vest following the end of the performance periods applicable to the executive’s performance share awards outstanding at the time of death or disability and as to which the performance periods have not concluded. The portion of each unearned performance share award that may vest is based on the achievement of the applicable performance goals during the entire performance period, and is calculated by multiplying the target number of performance shares by a fraction, the numerator of which is the number of whole months that have elapsed from the beginning of the applicable performance period to the date of termination of employment and the denominator of which is 36. |
The following table summarizes the unvested restricted stock, earned but unvested performance shares and unearned performance shares (assuming target performance) that would have vested on December 31, 20192020 if the executive’s employment terminated that day due to death or disability.
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| Restricted Stock Awards |
| Performance Shares |
| Total | ||||||||||||||||||||
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| | Restricted Stock Awards | | Performance Shares | | Total | ||||||||||||||||||||
Name |
| Number |
| Value |
| Number |
| Value |
| Equity Value |
| Number |
| Value |
| Number |
| Value |
| Equity Value | ||||||
Michael L. Scudder |
| 54,249 |
| $ | 1,250,982 |
| 101,415 |
| $ | 2,338,630 |
| $ | 3,589,612 | | 58,806 | | $ | 936,192 | | 94,819 | | $ | 1,509,518 | | $ | 2,445,710 |
Mark G. Sander |
| 40,104 |
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| 924,798 |
| 55,520 |
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| 1,280,291 |
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| 2,205,089 | | 41,022 | |
| 653,070 | | 50,646 | |
| 806,284 | | | 1,459,354 |
Patrick S. Barrett |
| 40,899 |
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| 943,131 |
| 31,893 |
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| 735,453 |
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| 1,678,584 | | 27,738 | | | 441,589 | | 29,479 | | | 469,306 | | | 910,895 |
Michael W. Jamieson |
| 21,469 |
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| 495,075 |
| 12,848 |
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| 296,275 |
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| 791,350 | | 23,174 | |
| 368,930 | | 15,799 | |
| 251,520 | | | 620,450 |
Thomas M. Prame |
| 17,212 |
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| 396,909 |
| 12,204 |
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| 281,424 |
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| 678,333 | | 19,977 | |
| 318,034 | | 11,913 | |
| 189,655 | | | 507,689 |
Discharge Without Cause; Resignation for Good Reason
Our employment agreements obligate us to pay severance benefits if a named executive officer’s employment is involuntarily terminated other than for cause. This includes the resignation by the executive for good reason. A good reason generally will occur if the executive determines we have breached the employment agreement by not maintaining the executive’s appointed positions, responsibilities or authority, failed to pay or provide the agreed-upon compensation, given notice that the agreement will not automatically renew, or required the executive to move to an office location more than a specified distance from the current location. In these circumstances:
| ◆ |
| Each executive is eligible to receive a pro-rata annual bonus based on, (a) in the case of Messrs. Scudder and Sander, |
| ◆ |
| Each executive is eligible to receive severance payments. In the case of Messrs. Scudder and Sander, these severance payments are equal to 2x the executive’s base salary and target bonus in effect at the time of termination, payable over 24 months. In the case of our other named executive officers, the executive is eligible to receive six months of salary continuation following termination, subject to extension in the Company’s discretion for up to an additional six months; |
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| First Midwest Bancorp, Inc. |
Executive Compensation Tables
| ◆ |
| Messrs. Scudder and Sander and, beginning with the equity awards granted in 2019, our other named executive officers, are eligible to receive pro-rata vesting of unearned or unvested equity awards. To the extent that the provisions of the applicable award agreements are not more favorable, (1) a portion of all unvested restricted stock awards, as well as all earned but unvested performance shares, will vest upon termination of the executive’s employment equal to the total number of shares of common stock subject to the award multiplied by a fraction, the numerator of which is the number of whole months that have elapsed from the grant date to the date of termination of employment and the denominator of which is the number of whole months in the period from the grant date to the final scheduled vesting date of the award, to the extent that the pro-rata portion exceeds the portion of the award that vested prior to the date of termination of employment, and (2) a portion of all unearned performance shares for which the applicable performance period will end after the date of termination of employment may remain outstanding and be eligible to be earned and vest based on actual performance at the end of the performance period, which portion is equal to the total number of performance shares granted under the award multiplied by a fraction, the numerator of which is the number of whole months that have elapsed from the first day of the performance period to the date of termination of employment and the denominator of which is the number of months in the performance period; |
| ◆ |
| Each executive is eligible to continue to participate in group health plans. In the case of Messrs. Scudder and Sander, the executive, the executive’s spouse and the executive’s age-eligible dependent children are eligible to maintain health benefits coverage on the same basis, including cost-sharing, as if the executive’s employment continued until the executive and the executive’s spouse are eligible for Medicare coverage and the executive’s dependents are no longer age-eligible for coverage under the Company’s plans. In the case of our other named executive officers, the executive is eligible to maintain health benefits coverage on the same basis as if the executive’s employment continued for a period of six months, subject to extension in the Company’s discretion for up to an additional six months; and |
| ◆ |
| Each of our named executive officers other than Messrs. Scudder and Sander are eligible for outplacement assistance. |
The executive is required to reaffirm compliance with the executive’s Confidentiality and Restrictive Covenants Agreement and execute a general release of claims as a condition to receiving severance benefits.
Severance
The following table summarizes the severance benefits that would be payable to our named executive officers had their employment been terminated involuntarily without cause or for good reason on December 31, 2019:2020:
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| Pro-Rated |
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| Medical |
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| | Severance/Salary Continuation | | Pro-Rated | | | | | | | Medical | | | | ||||||||||||||||||||||||||||||
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| Monthly | | Number of | | | Total |
| Annual | | Equity Awards(2) |
| Benefits/Out- |
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Name |
| Amount |
| Months |
| Amount |
| Bonus(1) |
| Number |
| Value |
| Placement(3) |
| Total |
| Amount |
| Months |
| Amount |
| Bonus(1) |
| Number |
| Value |
| Placement(3) |
| Total | ||||||||||||
Michael L. Scudder |
| $ | 145,917 |
| 24 |
| $ | 3,502,000 |
| $ | 884,255 |
| 129,721 |
| $ | 2,991,366 |
| $ | 108,830 |
| $ | 7,486,452 | | $ | 150,000 | | 24 | | $ | 3,600,000 | | $ | 900,000 | | 124,890 | | $ | 1,988,249 | | $ | 92,905 | | $ | 6,581,154 |
Mark G. Sander |
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| 95,625 |
| 24 |
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| 2,295,000 |
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| 477,225 |
| 77,252 |
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| 1,781,431 |
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| 163,757 |
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| 4,717,413 | |
| 98,458 | | 24 | |
| 2,363,000 | |
| 486,500 | | 72,410 | | | 1,152,767 | |
| 149,543 | |
| 4,151,810 |
Patrick S. Barrett |
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| 45,317 |
| 6 |
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| 271,900 |
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| 264,000 |
| 6,204 |
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| 143,064 |
|
| 139,591 |
|
| 818,555 | | | 46,667 | | 6 | | | 280,000 | | | 271,900 | | 19,949 | | | 317,588 | | | 144,032 | | | 1,013,520 |
Michael W. Jamieson |
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| 40,000 |
| 6 |
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| 240,000 |
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| 223,500 |
| 5,476 |
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| 126,277 |
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| 124,279 |
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| 714,056 | |
| 41,167 | | 6 | |
| 247,000 | |
| 240,000 | | 17,340 | | | 276,053 | |
| 128,192 | |
| 891,245 |
Thomas M. Prame |
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| 31,250 |
| 6 |
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| 187,500 |
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| 142,200 |
| 7,251 |
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| 167,208 |
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| 99,079 |
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| 595,987 | |
| 33,333 | | 6 | |
| 200,000 | |
| 187,500 | | 14,234 | | | 226,605 | |
| 104,604 | |
| 718,709 |
| (1) |
| The pro-rated annual bonus reflects, for Messrs. Scudder and Sander, full |
| (2) |
| Includes shares of restricted stock as follows: |
| |
2021 Proxy Statement | 89 |
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Executive Compensation Tables
| (3) |
| For Messrs. Scudder and Sander, reflects an estimate of the cost for the executive, his spouse and his age-eligible dependent children to maintain health benefits on the same basis as if the executive’s employment continued until the executive and the executive’s spouse are eligible for Medicare coverage and the executive’s dependents are no longer age-eligible for coverage under the Company’s plans. For our other named executive officers, reflects the amount of health benefit continuation (COBRA) premium paid by the Company during the salary continuation period and outplacement services estimated to be 12% of annual base salary. |
Change-in-Control
We have provisions in the employment agreements with our named executive officers and in our employee benefit plans for the payment of severance benefits in the event of a change-in-control of the Company. In the event of a change-in-control, our employment agreements require a “double trigger” to occur before enhanced severance benefits are paid. A “double trigger” involves both a change-in-control of the Company and a qualifying termination of the named executive officer’s employment following the change-in-control. The enhanced severance benefits consist of a lump sum payment of:
| ◆ |
| In the case of Messrs. Scudder and Sander, 3x the sum of (1) the executive’s base salary in effect as of the date of termination of employment or, if greater, the date immediately preceding the change-in-control, and (2) the executive’s target bonus in effect for the year in which the change-in-control occurs or, if greater, the year in which the date of termination of employment occurs; |
| ◆ |
| In the case of our other named executive officers, 2x the sum of (1) the executive’s base salary in effect as of the date of termination of employment or, if greater, the date immediately preceding the change-in-control, (2) the greater of the average of the annual cash incentive compensation earned by the executive for (a) the three years immediately preceding the year in which the date of termination of employment occurs, or (b) the three years immediately preceding the year in which the change-in-control occurs (or, in the case of Messrs. Barrett and Jamieson, the target annual cash incentive compensation for the year in which the termination occurs), and (3) certain other amounts; and |
| ◆ |
| A pro-rata annual bonus based, in the case of Messrs. Scudder and Sander, on target performance for the year employment terminates or, in the case of our other named executive officers, on target performance for the year prior to the year employment terminates. |
In addition, our named executive officers are eligible to receive the following additional benefits in the event of the executive’s qualifying termination following a change-in-control:
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| For all equity awards, a “double trigger” is required to occur before unearned and unvested equity awards will vest in connection with a change-in-control. As such, both a change-in-control of the Company and a termination of employment within 24 months following the change-in-control by either the executive for good reason or an acquirer without cause must occur in order for the unearned or unvested equity awards to vest; |
| ◆ |
| In the case of Messrs. Scudder and Sander, the executive, the executive’s spouse and the executive’s age-eligible dependent children are eligible to maintain health benefits coverage on the same basis, including cost-sharing, as if the executive’s employment continued until the executive and the executive’s spouse are eligible for Medicare coverage and the executive’s dependents are no longer age-eligible for coverage under the Company’s plans; and |
| ◆ |
| Each of our named executive officers other than Messrs. Scudder and Sander are eligible for outplacement assistance. |
None of the employment agreements with our named executive officers provide for a gross-up payment should the executive be subject to an excise tax under the Internal Revenue Code.
| |
| First Midwest Bancorp, Inc. |
Executive Compensation Tables
The table below summarizes the severance payments we would be obligated to make if a change-in-control occurred and the named executive officer’s employment terminated (other than for cause) on December 31, 2019.2020.
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| Restricted Stock |
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| | Sum Cash | | Restricted Stock | | Performance | | Total | | Medical | | | ||||||||||||||||||||||||||||||||
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Name |
| Amount |
| Number |
| Value |
| Number |
| Value |
| Value |
| Placement |
| Total |
| Amount |
| Number |
| Value |
| Number |
| Value |
| Value |
| Placement |
| Total | ||||||||||||
Michael L. Scudder |
| $ | 6,128,500 |
| 54,249 |
| $ | 1,250,982 |
| 142,506 |
| $ | 3,286,188 |
| $ | 4,537,170 |
| $ | 108,830 |
| $ | 10,774,501 |
| $ | 6,300,000 |
| 58,806 |
| $ | 936,192 |
| 140,471 |
| $ | 2,236,298 |
| $ | 3,172,490 | | $ | 92,905 |
| $ | 9,565,395 |
Mark G. Sander |
|
| 3,915,000 |
| 40,104 |
|
| 924,798 |
| 77,046 |
|
| 1,776,681 |
|
| 2,701,479 |
| 163,757 |
|
| 6,780,236 | |
| 4,031,000 |
| 41,022 | |
| 653,070 |
| 76,273 | |
| 1,214,266 | |
| 1,867,336 | | | 149,543 | |
| 6,047,879 | |
Patrick S. Barrett |
|
| 2,075,734 |
| 40,899 |
|
| 943,131 |
| 40,918 |
|
| 943,569 |
|
| 1,886,700 |
| 130,512 |
|
| 4,092,946 | | | 2,070,051 | | 27,738 | | | 441,589 | | 39,803 | | | 633,664 | | | 1,075,253 | | | 134,400 | | | 3,279,704 | |
Michael W. Jamieson |
|
| 1,811,182 |
| 21,469 |
|
| 495,075 |
| 20,712 |
|
| 477,619 |
|
| 972,694 |
| 115,200 |
|
| 2,899,076 | |
| 1,891,529 |
| 23,174 | |
| 368,930 |
| 24,908 | |
| 396,535 | |
| 765,465 | | | 118,560 | |
| 2,775,554 | |
Thomas M. Prame |
|
| 1,301,733 |
| 17,212 |
|
| 396,909 |
| 16,837 |
|
| 388,261 |
|
| 785,170 |
| 90,000 |
|
| 2,176,903 | |
| 1,482,055 |
| 19,977 | |
| 318,034 |
| 18,676 | |
| 297,322 | |
| 615,356 | | | 96,000 | |
| 2,193,411 | |
In accordance with applicable SEC rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, we determined an estimate of the ratio of Mr. Scudder’s annual total compensation to the annual total compensation of our median employee.
To determine our median employee for 2019,2020, we considered the W-2 reported total compensation for all employees (other than Mr. Scudder) who were employed by the Company as of December 31, 2019,2020, including all full-time, part-time, temporary and seasonal employees. In 2019,2020, the Company did not have any non-U.S. employees. No adjustments were made to the compensation data for purposes of annualization or otherwise.
Our determinationUpon identification of theour 2020 median employee, yielded two median employees because, when not including the CEO, we had an even number of employees. Therefore, we calculated eachthe employee’s total compensation using the same methodology as required under SEC rules for disclosure in the summary compensation table of our named executive officers’ total compensation, and we averaged the total compensation of the two median employees in order to arrive at the total compensation of the median employee.
compensation. In the20192020 Summary Compensation Table, we report the annual cash incentive compensation paid to our Chief Executive Officer in 20202021 for performance in 2019. Neither of the two2020. Our median employees participatedemployee did not participate in our annual cash incentive program in 2019,2020, but each median employee instead participated in a separate cash incentive plan that paid periodically throughout 2019.2020. Accordingly, we used the amounts received in 20192020 under this periodic cash incentive plan for purposes of calculating eachthe median employee’s 20192020 annual total compensation. For purposes of calculating total compensation for both of our median employeesemployee and Mr. Scudder, we also added the total cost of Company-paid health insurance.
Using the methodology described above, we determined that the annual total compensation of our median employee for 20192020 was $57,538,$68,166, which, when compared to Mr. Scudder’s total compensation of $3,968,330,$3,422,910 resulted in a CEO to median employee pay ratio of 6950 to 1. Our pay ratio is 6348 to 1, excluding change in pension value non-qualified deferred compensation earnings and the make-up equity grant (made in 2019 to correct the administrative error made in 2018) that werewas included in Mr. Scudder’s total compensation for 2019,2020, which totaled $354,332.$148,118.
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The primary responsibilities of the Audit Committee are, among others, to assist the Board of Directors in its oversight of: (1) the integrity of the Company’s financial statements and systems of internal control over financial reporting, (2) the Company’s compliance with legal and regulatory requirements relating to financial reporting and disclosure, (3) the independence, qualifications and performance of the Company’s independent registered public accounting firm, and (4) the performance of the Company’s internal audit function. The Audit Committee also is solely responsible for the appointment and compensation of the Company’s independent registered public accounting firm. The Board of Directors has adopted an Audit Committee Charter, which sets forth the specific duties of the Audit Committee, a copy of which is available on the Company’s website.
In carrying out its oversight responsibilities, the Audit Committee relies on the expertise and knowledge of management, the independent registered public accounting firm and the internal auditors. Management is responsible for determining that the Company’s financial statements are complete, accurate and in accordance with U.S. generally accepted accounting principles. Management is responsible for maintaining appropriate accounting and financial reporting principles and policies as well as internal controls and procedures that provide for compliance with accounting standards and applicable laws and regulations. The Company’s independent registered public accounting firm is responsible for planning and carrying out a proper audit of the Company’s financial statements and internal control over financial reporting. The internal auditors are responsible for evaluating the adequacy and effectiveness of the Company’s processes and system of internal controls to achieve the Company’s stated goals and objectives. It is not the duty of the Audit Committee to plan or conduct audits, to determine that the Company’s financial statements are complete and accurate and are in accordance with U.S. generally accepted accounting principles, or to conduct investigations or other types of auditing or accounting reviews or procedures.
The Audit Committee has reviewed and had discussions with management and Ernst & Young LLP regarding the Company’s audited financial statements for the year ended December 31, 2019.2020. The Audit Committee also has discussed with Ernst & Young LLP the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (PCAOB) and the SEC. The Audit Committee has received the required written disclosures and letter from Ernst & Young LLP under applicable PCAOB standards regarding auditor independence, and has discussed with Ernst & Young LLP its independence. The Audit Committee has established policies and procedures regarding the pre-approval of all services provided by Ernst & Young LLP. The Audit Committee has reviewed the audit and non-audit services provided by Ernst & Young LLP for the year ended December 31, 20192020 and considered whether such services are compatible with maintaining its independence, and determined to engage Ernst & Young LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2020.2021.
Based upon the Audit Committee’s review of the Company’s audited financial statements and the discussions noted above, and subject to the limitations on the role and responsibilities of the Audit Committee referred to above and in its charter, the Audit Committee has recommended to the Board of Directors that the Company’s audited financial statements for the year ended December 31, 20192020 be included in the Company’s Form 10‑K for the same year filed with the SEC.
| | |
Stephen C. Van Arsdell (Chair) |
| Thomas L. Brown |
Phupinder S. Gill | | Kathryn J. Hayley |
Frank B. Modruson | |
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| | Members, Audit Committee |
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| First Midwest Bancorp, Inc. |
Voting Your Shares
You are entitled to vote your shares of Common Stockcommon stock at the Annual Meeting if you were a stockholder of record of the Company at the close of business on March 27, 2020,26, 2021, the Record Date for the Annual Meeting. On that date, there were 114,327,151114,334,259 shares of Common Stockcommon stock outstanding, each of which is entitled to one vote for each matter to be voted on at the Annual Meeting. On the Record Date, we had 2,2282,489 stockholders of record.
Time and Location of the Annual Meeting
The Annual Meeting will be held on Wednesday, May 19, 2021 at 9:00 a.m., Central time, in a virtual meeting format only. Stockholders may participate in the virtual Annual Meeting by accessing www.virtualshareholdermeeting.com/FMBI2021. Online check-in will begin, and stockholders may begin submitting written questions, at 8:45 a.m. Central time, and you should allow ample time for the check-in procedures. Stockholders will not be able to attend the Annual Meeting in person.
Participating in, Voting and Asking Questions During the Annual Meeting
Participating
Stockholders are invited to participate in the virtual Annual Meeting by accessing www.virtualshareholdermeeting.com/FMBI2021. All stockholders will need their assigned 16-digit control number to vote or submit questions. The control number can be found on the Proxy Card. Guests without a control number may also attend the virtual Annual Meeting but will not be permitted to vote or submit questions.
Voting
Whether or not you plan to attend the virtual Annual Meeting, your shares should be represented and voted. Stockholders are encouraged to vote their shares in advance through the website or toll-free telephone number noted on your Proxy Card, or by signing, dating and returning your Proxy Card in the postage pre-paid envelope provided. While voting in advance is not necessary, it will ensure stockholder representation at the Annual Meeting. Stockholders may also cast their vote during the virtual Annual Meeting by following the instructions on the virtual meeting website.
Asking Questions
During the Annual Meeting, we will try to answer as many questions as time permits that are submitted online by stockholders (whether shortly before or during the meeting) and that comply with our rules of conduct and that are relevant to the business conducted at the meeting or to the business or operations of the Company. Please note that we may group or summarize similar or related questions to provide answers as efficiently as possible and we may not be able to provide live answers to every question submitted. If any questions pertinent to the business conducted at the meeting cannot be answered during the meeting due to time constraints, we will either post a representative set of these questions, along with our responses, on the Investor Relations section of our website at https://investor.firstmidwest.com/corporate-information/corporate-profile/, or we will contact the stockholder(s) directly. These questions and answers will be available as soon as reasonably practicable after the Annual Meeting has taken place and will remain available for one week after posting. Stockholders of record may ask questions during the virtual Annual Meeting by following the instructions on the virtual meeting website.
Help with Technical Difficulties
The virtual meeting website will provide technical assistance to stockholders experiencing issues accessing the virtual Annual Meeting. The technical support contact will appear on the meeting website prior to the start of the virtual Annual Meeting. If there are any technical issues in convening or hosting the meeting, we will promptly post information to the Investor Relations section of our website at https://investor.firstmidwest.com/corporate-information/corporate-profile/, including information on when the meeting will be reconvened.
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2021 Proxy Statement | 93 |
Other Matters
Appointing a Proxy
A proxy is your direction to another person to vote your shares. When you vote your shares, whether via the Internet, by telephone or by signing and mailing a Proxy Card, you will appoint certain officers of the Company to vote your shares of Common Stockcommon stock at the Annual Meeting in the manner you instruct. Even if you plan to attend the virtual Annual Meeting, you should vote your shares in advance.
Record Stockholders and Beneficial Ownership; Proxy Materials
If you hold shares of our Common Stockcommon stock that are registered in your name through our transfer agent, Computershare, as of the Record Date, you are the stockholder of record with respect to those shares.
If you hold shares of our Common Stockcommon stock indirectly through a bank, broker or similar institution, you are considered a beneficial owner of those shares but are not the stockholder of record. We refer to banks, brokers and similar institutions in this Proxy Statement collectively as “brokers.” In this circumstance, you are a stockholder whose shares are held in “street name” and your broker is considered the stockholder of record.
We sent copies of our proxy materials directly to all stockholders of record. If you are a beneficial owner whose shares are held in street name, these materials were sent to you by the broker through which you hold your shares. As the beneficial owner, you may direct your broker how to vote your shares at the Annual Meeting and the broker is obligated to provide you with a voting instruction form for you to use for this purpose.
A list of the stockholders of record as of the Record Date will be available for inspection for purposes germane to the Annual Meeting during ordinary business hours at our offices, 8750 West Bryn Mawr Avenue, Suite 1300, Chicago, Illinois 60631, from May 8, 20207, 2021 to May 19, 2020,18, 2021, as well as atduring the Annual Meeting.meeting. In light of our precautions regarding coronavirus (COVID-19),the COVID-19 pandemic, if you would like to inspect the list of stockholders of record, we ask that you contact our Corporate Secretary’s office in advance at (708) 831‑7483831-7483 so that we can make appropriate arrangements for your review.
Participants in the Company’s Benefit Plans
Current employees who participate in the First Midwest Bancorp, Inc. Savings and Profit Sharing Plan, First Midwest Bancorp, Inc. Nonqualified Retirement Plan, First Midwest Bancorp, Inc. Stock Option Gain Deferral Plan and/or the First Midwest Bancorp, Inc. Dividend Reinvestment Plan, and have a Company e-mail address, will receive an e-mail from ComputershareBroadridge describing how to access proxy materials and vote via the Internet or by telephone. One e-mail will be sent for all accounts registered in the same employee name. If the employee’s accounts are registered in different names, he or she will receive a separate e-mail for each account. This e-mail will be titled: FIRST MIDWEST BANCORP, INC. 20202021 ANNUAL MEETING OF STOCKHOLDERS – CAST YOUR VOTE. Participants without a Company e-mail address will receive proxy materials by mail.
The trustees under these plans (other than the First Midwest Bancorp, Inc. Dividend Reinvestment Plan) are the stockholders of record of all shares of Common Stockcommon stock held in the plans, and the trustees will vote the shares held for the account of each participant in accordance with the instructions received from the participant. If the trustees do not receive voting instructions by the specified deadline, the trustees will vote the shares proportionally in the same manner as those shares for which instructions were received. Because the participants are not the record owners of the related shares, the participants may not vote these shares in person at the Annual Meeting. Individual voting instructions to the plan trustees will be kept confidential and will not be disclosed to any of our directors, officers or employees.
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Other Matters
Proxy Cards
If you receive multiple Proxy Cards, this means you hold your shares in more than one account. To vote all of your shares by proxy, please vote the shares in each account via the Internet or by telephone, or complete, sign, date and return each Proxy Card that you receive.
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94 | First Midwest Bancorp, Inc. |
Other Matters
If you lose, misplace or otherwise need to obtain a Proxy Card, and:
| ◆ |
| you are a stockholder of record, contact our Corporate Secretary’s office at (708) |
| ◆ |
| you hold |
Requirement of a Quorum
A quorum is required to transact business at the Annual Meeting. The holders of a majority of the outstanding shares of Common Stockcommon stock on the Record Date, present in personattendance at the virtual Annual Meeting or represented by proxy and entitled to vote, will constitute a quorum for the transaction of business at the Annual Meeting. Abstentions and broker non-votes, which are described more fully in the following section, are treated as present for quorum purposes.
Voting and Required Votes
If you are a stockholder of record, you may cast your vote via the Internet, by telephone, by mail or in person atduring the Annual Meeting. If you hold your shares in street name, you may vote by following your broker’s instructions. The various methods of voting are described in more detail under Proxy Summary—How to Vote.
If you are a stockholder of record on the Record Date and you properly vote your shares via the Internet, by telephone or by mail, your shares will be voted in accordance with your instructions. If you sign and return your Proxy Card, but do not give voting instructions, your shares will be voted in the manner recommended by the Board of Directors, as follows: FOR each director nominee named in this Proxy Statement and FOR each of the other items set forth in the Notice attached to this Proxy Statement. If you sign and return your Proxy Card, but do not give voting instructions, you also will grant discretionary authority to the named proxies to vote on any other matters that may properly come before the Annual Meeting, or any adjournment or postponement, which will be voted in accordance with the best judgment of the named proxies.
If your shares are held in street name, on routine matters, the shares will be voted by the broker through which you hold your shares in accordance with your instructions and, if no instructions are given, your broker is entitled to vote your shares in its discretion. On non-routine matters, your broker will vote your shares only if you have provided the broker with voting instructions. If you do not give your broker voting instructions for non-routine items, your shares will be treated as “broker non-votes.” This means your shares will be counted for the purpose of determining if a quorum is present but, except as provided below, will not be included as votes cast with respect to the non-routine items. The determination of whether a matter is routine or non-routine is made under the rules of the NASDAQ Stock Market.
An abstention occurs when a stockholder marks his or her Proxy Card as ABSTAIN and thereby abstains from voting on a matter.
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Other Matters
The following chart explains which items to be voted upon at our Annual Meeting are routine and non-routine and the treatment of broker non-votes and abstentions.
Item | Voting Requirements | Effect of Broker Non-Votes and Abstentions | ||
Election of Directors (Non-Routine) | | ◆ You may vote FOR or AGAINST any or all director nominees named in this Proxy Statement, or you may ABSTAIN as to one or more directors. ◆ A majority of the votes cast at the Annual Meeting with respect to the election of a director must be voted FOR the director in order for the director to be elected. | | Broker non-votes and votes to ABSTAIN are not treated as a “vote cast” with respect to the election of a director, and thus will have no effect on the outcome of the vote. |
Approval of the Amendment and Restatement of the First Midwest Bancorp, Inc. 2018 Stock and Incentive Plan (Non-Routine) | | ◆You may vote FOR or AGAINST approval of the Amendment and Restatement of the First Midwest Bancorp, Inc. 2018 Stock and Incentive Plan, or you may ABSTAIN. ◆A majority of the votes in attendance at the virtual Annual Meeting or represented by proxy and entitled to vote at the Annual Meeting must be voted FOR this item in order for it to pass. | | Broker non-votes will have no effect on the outcome of the vote on this item. Votes to ABSTAIN will have the effect of a vote AGAINST this item. |
Approval of an Advisory (Non-Binding) Resolution Regarding the Compensation Paid in | | ◆ You may vote FOR or AGAINST the advisory resolution regarding the compensation paid to our named executive officers, or you may ABSTAIN. ◆ This is an advisory resolution that is non-binding on our Board. A majority of the votes | | Broker non-votes will have no effect on the outcome of the vote on this item. Votes to ABSTAIN will have the effect of a vote AGAINST this item. |
Ratification of the Appointment of the Company’s Independent Registered Public Accounting Firm (Routine) | | ◆ You may vote FOR or AGAINST the ratification of our Audit Committee’s appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, ◆ A majority of the votes | | Broker non-votes are not expected to exist because brokers have discretionary authority to vote on this item. Votes to ABSTAIN will have the effect of a vote AGAINST this item. |
As described underItem 1 Election of Directors, if a director who currently serves on the Board of Directors fails to receive a majority of the votes cast FOR his or her election, he or she will tender his or her resignation to the Board of Directors for consideration and our Board will determine whether to accept or reject the resignation, or whether other action should be taken.
Revoking or Changing a Vote
You can revoke or change your vote at any time before your shares are voted at the Annual Meeting by timely:
| ◆ |
| resubmitting your vote via the Internet or by telephone; or |
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| executing and mailing a Proxy Card that is dated and received on a later date; or |
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96 | First Midwest Bancorp, Inc. |
Other Matters
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| giving written notice of revocation to our Corporate Secretary at 8750 West Bryn Mawr Avenue, Suite 1300, Chicago, Illinois 60631; or |
| ◆ |
| voting |
If your shares are held in street name, you should contact your broker to change your vote.
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Other Matters
Other Business and Discretionary Authority
As of the date of this Proxy Statement, our Board of Directors knows of no matters to come before, and does not intend to present any matters at, the Annual Meeting other than those items set forth in the Notice of Annual Meeting of Stockholders attached to this Proxy Statement. If other matters properly come before the Annual Meeting, or any adjournment or postponement, the persons named as proxies on the Proxy Card accompanying this Proxy Statement will have discretionary authority to vote pursuant to the Proxy Card, and the named proxies intend to vote on such matters in accordance with their best judgment. In addition, the persons named as proxies on the Proxy Card will have the discretionary authority to vote pursuant to the Proxy Card on any proposal to adjourn the Annual Meeting for any reason, and they will vote on any such proposal to adjourn in accordance with their best judgment.
Each of the nominees for election as directors named in this Proxy Statement has consented to serve on our Board of Directors if elected, and we have no reason to believe that any of the nominees will be unwilling or unable to serve. However, should any nominee become unable or unwilling to serve as a director, the persons named as proxies on the Proxy Card accompanying this Proxy Statement intend to vote for the election of any other person who may be nominated by our Board of Directors.
Important Notice Regarding Delivery of Stockholder Documents
SEC rules allow us to mail a single copy of our proxy materials to multiple stockholders of record sharing the same address and who we reasonably believe are members of the same household or to one stockholder who has multiple stockholder accounts. This practice is referred to as “householding” and can result in significant savings of paper and mailing costs. We will deliver promptly to any stockholder sharing the same address a separate copy of this Proxy Statement and our 20192020 Annual Report upon a request to our Corporate Secretary by mail at 8750 West Bryn Mawr Avenue, Suite 1300, Chicago, Illinois 60631, or by telephone at (708) 831‑7483.831-7483.
We have been notified that certain brokers holding our Common Stockcommon stock for their customers also will household proxy materials. If you hold your shares in street name, you may contact your broker if you desire to receive a separate copy of our proxy materials.
Stockholders sharing an address who now receive multiple copies of our proxy materials and who wish to receive only one copy of these materials per household in the future should contact our Corporate Secretary as indicated above (if your shares are held directly) or your broker (if your shares are held in street name).
Expenses of Proxy Solicitation
We will pay the expenses of the preparation of proxy materials and the solicitation of proxies for the Annual Meeting. In addition to the solicitation of proxies by mail, solicitations may be made by certain of our directors, officers, employees or affiliates telephonically, electronically or by other means of communication. Directors, officers and employees will receive no additional compensation for any such solicitation. AlthoughIn addition, we do not anticipate using a paid proxy solicitor in connectionhave retained Georgeson LLC to assist us with the Annual Meeting, we may do so if we believe this to be appropriate.solicitation of proxies for a fee of approximately $12,000, plus out-of-pocket expenses. We will bear all proxy solicitation costs. We will also reimburse brokers for costs incurred by them in mailing proxy materials to beneficial owners in accordance with applicable requirements.
Attending the Annual Meeting – Possibility of Virtual Meeting
All stockholders must bring an acceptable form of identification, such as a valid driver’s license, in order to attend the Annual Meeting. If you hold shares in street name and would like to attend our Annual Meeting, you also will need to bring an account statement showing that you owned shares of Common Stock as of the Record Date and a “legal proxy” form from the broker through which you hold your shares. If you attend the Annual Meeting as a representative of a stockholder that is an entity, then you must bring proof of your authorization to attend and act on behalf of that entity.
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Other Matters
As part of our precautions regarding coronavirus (COVID-19) and in light of the priority we place on the health, safety and well-being of our stockholders and colleagues, we are planning for the possibility that the Annual Meeting may be held solely by means of remote communication. If we take this step, we will announce the decision to do so in advance and details on how to participate will be publicly announced in a press release, available on our website at www.firstmidwest.com/pressreleases,and filed with the SEC as proxy material. If we hold a virtual meeting, you will need the control number included on your Proxy Card in order to participate.
Reporting of Voting Results
Preliminary voting results will be announced at the Annual Meeting. Final voting results are expected to be published in a Current Report on Form 8‑K8-K filed with the SEC within four business days after the Annual Meeting. A copy of this Current Report on Form 8‑K8-K will be available on our website at www.firstmidwest.com/investorrelationshttps://investor.firstmidwest.com/sec-filings/documents/ after its filing with the SEC.
Stockholder Proposals for 20212022 Annual Meeting of Stockholders
Stockholders who, in accordance with the SEC’s Rule 14a‑8,14a-8, wish to present proposals for inclusion in our proxy materials in connection with our 20212022 annual meeting of stockholders must submit their proposals on or before December 18, 202014, 2021 to First Midwest Bancorp, Inc., Attn: Corporate Secretary, 8750 West Bryn Mawr Avenue, Suite 1300, Chicago, Illinois 60631.
In accordance with our Certificate of Incorporation, for a proposal or director nomination to be properly presented at the 20212022 annual meeting of stockholders (but not necessarily contained in our proxy statement), a stockholder’s notice of the matter must comply with the requirements in our Certificate of Incorporation and be timely delivered to First Midwest Bancorp, Inc., Attn: Corporate Secretary, 8750 West Bryn Mawr Avenue, Suite 1300, Chicago, Illinois 60631, not less than 120 nor more than 180 days prior to the date of the meeting, which currently is scheduled for May 19, 2021.18, 2022. As a result, any notice given by or on behalf of a stockholder under these provisions of our Certificate of Incorporation (and not pursuant to the SEC’s Rule 14a‑8)14a-8) must be received no earlier than November 20, 202019, 2021 and no later than January 19, 2021.18, 2022.
Incorporation by Reference
To the extent that this Proxy Statement is incorporated by reference into any other filing by the Company under the Securities Act of 1933, as amended, or the Exchange Act, the sections of this Proxy Statement entitled Compensation Committee Report and Audit Committee Report will not be deemed incorporated therein, unless specifically provided otherwise in such filing. We also include several website addresses in this Proxy Statement for your reference. The information on these websites is not part of this Proxy Statement.
Additional Information
You may obtain additional information regarding the Company, including our corporate governance policies and practices, by visiting our website at www.firstmidwest.com/investorrelationshttps://investor.firstmidwest.com/corporate-information/documents/, or by making a written request to our Corporate Secretary at First Midwest Bancorp, Inc., 8750 West Bryn Mawr Avenue, Suite 1300, Chicago, Illinois 60631.
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| By Order of the Board of Directors, |
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| Nicholas J. Chulos |
| Executive Vice President, General Counsel |
| and Corporate Secretary |
| First Midwest Bancorp, Inc. |
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| April |
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TABLE OF CONTENTS
| | Page |
SECTION 1. | ESTABLISHMENT, PURPOSE, AND EFFECTIVE DATE OF PLAN | A-1 |
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1.1 | Establishment | A-1 |
1.2 | Purpose | A-1 |
1.3 | Effective Date | A-1 |
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SECTION 2. | DEFINITIONS | A-1 |
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2.1 | Definitions | A-1 |
2.2 | Gender and Number | A-4 |
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SECTION 3. | ELIGIBILITY AND PARTICIPATION | A-4 |
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3.1 | Eligibility and Participation | A-4 |
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SECTION 4. | ADMINISTRATION | A-4 |
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4.1 | Administration | A-4 |
4.2 | Delegation of Authority | A-4 |
4.3 | Award Agreements | A-4 |
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SECTION 5. | STOCK SUBJECT TO PLAN | A-4 |
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5.1 | Number of Shares Available for Awards | A-4 |
5.2 | Reuse of Shares | A-5 |
5.3 | Minimum Vesting Period | A-5 |
5.4 | Adjustment in Authorized Shares and Limitations | A-5 |
5.5 | No Repricing Without Stockholder Approval | A-5 |
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SECTION 6. | DURATION OF PLAN | A-6 |
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6.1 | Duration of Plan | A-6 |
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SECTION 7. | STOCK OPTIONS | A-6 |
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7.1 | Grant of Options | A-6 |
7.2 | Option Price | A-6 |
7.3 | Exercise of Options | A-6 |
7.4 | Payment | A-6 |
7.5 | Limitations on ISOs | A-6 |
7.6 | Restrictions on Stock Transferability | A-7 |
7.7 | Effect of Termination of Employment | A-7 |
7.8 | Termination of Employment Due to Death, Disability or Retirement | A-7 |
7.9 | Termination of Employment other than Due to Death, Disability or Retirement | A-7 |
7.10 | Nontransferability of Options | A-7 |
| | |
SECTION 8. | STOCK APPRECIATION RIGHTS | A-8 |
| | |
8.1 | Grant of SARs | A-8 |
8.2 | Exercise of SARs | A-8 |
8.3 | Payment of SAR Amount | A-8 |
8.4 | Form and Timing of Payment | A-8 |
8.5 | Term of SAR | A-8 |
8.6 | Effect of Termination of Employment | A-8 |
8.7 | Nontransferability of SARs | A-8 |
| | |
SECTION 9. | RESTRICTED STOCK AND RESTRICTED STOCK UNITS | A-8 |
| | |
9.1 | Grant of Restricted Stock or Restricted Stock Units | A-8 |
9.2 | Transferability | A-8 |
9.3 | Other Restrictions | A-8 |
9.4 | Voting Rights | A-9 |
9.5 | Dividends and Other Distributions | A-9 |
9.6 | Effect of Termination of Employment | A-9 |
9.7 | Termination of Employment Due to Retirement | A-9 |
9.8 | Termination of Employment Due to Death or Disability | A-9 |
9.9 | Termination of Employment for Reasons other than Death, Disability or Retirement | A-9 |
9.10 | Nontransferability | A-9 |
| | |
SECTION 10. | PERFORMANCE UNITS AND PERFORMANCE SHARES | A-9 |
| | |
10.1 | Grant of Performance Units or Performance Shares | A-9 |
10.2 | Value of Performance Units and Performance Shares | A-10 |
10.3 | Payment of Performance Units and Performance Shares | A-10 |
10.4 | Form and Timing of Payment | A-10 |
10.5 | Effect of Termination of Employment | A-10 |
10.6 | Termination of Employment Due to Death, Disability or Retirement | A-10 |
10.7 | Termination of Employment for Other Reasons | A-10 |
10.8 | Nontransferability | A-10 |
10.9 | Performance-Based Awards | A-10 |
| | |
SECTION 11. | OTHER AWARDS | A-11 |
| | |
11.1 | Grant of Other Awards | A-11 |
11.2 | Terms of Other Awards | A-11 |
| | |
SECTION 12. | BENEFICIARY DESIGNATION | A-11 |
| | |
12.1 | Beneficiary Designation | A-11 |
| | |
SECTION 13. | RIGHTS OF EMPLOYEES | A-11 |
| | |
13.1 | Employment | A-11 |
13.2 | Participation | A-11 |
| | |
SECTION 14. | EFFECT OF CHANGE IN CONTROL; DOUBLE-TRIGGER VESTING | A-11 |
| | |
14.1 | In General | A-11 |
14.2 | Definition | A-11 |
14.3 | Vesting if No Substitute Award | A-12 |
14.4 | Substitute Awards | A-12 |
14.5 | Double-Trigger Vesting of Substitute Awards Upon Qualifying Termination | A-13 |
| | |
SECTION 15. | AMENDMENT, MODIFICATION AND TERMINATION OF PLAN | A-13 |
| | |
15.1 | Amendment, Modification, Suspension and Termination of Plan | A-13 |
15.2 | Amendment or Modification of Awards | A-13 |
15.3 | Effect on Outstanding Awards | A-14 |
| | |
SECTION 16. | TAX WITHHOLDING | A-14 |
| | |
16.1 | Tax Withholding | A-14 |
16.2 | Share Withholding | A-14 |
ii
| | |
SECTION 17. | INDEMNIFICATION | A-14 |
| | |
17.1 | Indemnification | A-14 |
| | |
SECTION 18. | ADDITIONAL PROVISIONS | A-14 |
| | |
18.1 | Requirements of Law | A-14 |
18.2 | Governing Law | A-14 |
18.3 | Other Restrictions, Limitations and Recoupment (Clawback) | A-14 |
18.4 | Election to Defer | A-15 |
18.5 | Code Section 409A | A-15 |
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Section 1. Establishment, Purpose, and Effective Date of Plan
1.1 Establishment. The First Midwest Bancorp, Inc. 2018 Stock and Incentive Plan was originally established by First Midwest Bancorp, Inc., a Delaware corporation, on March 20, 2018. The Company hereby amends and restates in its entirety the First Midwest Bancorp, Inc. 2018 Stock and Incentive Plan as set forth herein.
1.2 Purpose. The purpose of the Plan is to advance the interests of the Company by providing to employees additional incentives and motivation toward superior performance of the Company and its Subsidiaries, and by enabling the Company and its Subsidiaries to attract and retain the services of employees upon whose judgment, interest and effort the successful conduct of its operations is largely dependent.
1.3 Effective Date. The Plan was originally adopted by the Board on March 20, 2018 and became effective upon the approval by the stockholders of the Company on May 16, 2018. The Plan was amended and restated as set forth herein by the Board on and this amendment and restatement of the Plan shall become effective immediately upon the approval of the stockholders at the Company’s 2021 Annual Meeting of Stockholders. In the event that the amended and restatement of the Plan is not approved by stockholders at the Company’s 2021 Annual Meeting of Stockholders, then the First Midwest Bancorp, Inc. 2018 Stock and Incentive Plan as of May 16, 2018 will remain in effect pursuant to its terms.
2.1 Definitions. Whenever used herein, the following terms shall have their respective meanings set forth below:
(a) “Award” means any Stock Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Unit, Performance Share or Other Award granted under this Plan.
(b) “Amendment and Restatement Effective Date” means the date this amended and restatement of the Plan is approved by the Company’s stockholders.
(c) “Award Agreement” means the agreement or other writing (which may be framed as a plan, program or notification, and which may be in electronic format) that sets forth the terms and conditions of each Award under the Plan, including any amendment or modification thereof.
(d) “Board” means the Board of Directors of the Company.
(e) “Cause” shall mean any one of the following:
(i) gross misconduct in, or the continued and willful refusal by the Participant (other than as a result of physical or mental incapacity) after written notice by the Company to perform the Participant’s duties for the Company or a Subsidiary; or
(ii) conviction for a felony for a matter related to the Company or a Subsidiary; or
(iii) suspension due to the direction of any authorized bank regulatory agency that the Participant be relieved of his or her duties and responsibilities to the Company or a Subsidiary.
(f) “Code” means the Internal Revenue Code of 1986, as amended from time to time.
(g) “Committee” means the Compensation Committee of the Board of Directors or such other committee appointed from time to time by the Board of Directors to administer this Plan. The Committee shall consist of three or more independent members of the Board, and shall be qualified to administer the Plan as contemplated by (i) Rule 16b-3 of the Securities Exchange Act of 1934 (or any successor rule), (ii) any rules and regulations of the NASDAQ Global Select Market (or such other stock exchange on which the Stock is traded), and (iii) to the extent applicable, Section 162(m) of the Code, as amended, and the regulations thereunder (or any successor Section and regulations). Any member of the Committee who does not satisfy the qualifications set out in the preceding sentence may recuse himself or herself from any vote or other action taken by the Committee.
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(h) “Company” means First Midwest Bancorp, Inc., a Delaware corporation.
(i) “Director” means a director of the Company or a Subsidiary.
(j) “Disability” means totally and permanently disabled as defined in the First Midwest Bancorp, Inc. Consolidated Pension Plan as in effect on the Original Effective Date.
(k) “Employee” means an employee of the Company or any of its Subsidiaries, including an employee who is an officer or a Director.
(l) “Fair Market Value” means the average of the highest and lowest prices of the Stock as reported by the Nasdaq Global Select Market on a particular date. In the event that there are no Stock transactions on such date, the Fair Market Value shall be determined as of the immediately preceding date on which there were Stock transactions.
(m) “Full Value Award” means any Award under the Plan pursuant to which shares may be issued, other than Options and SARs.
(n) “Minimum Vesting Period” means a vesting period of not less than one year.
(o) “Option” means the right to purchase Stock at a stated price for a specified period of time. For purposes of the Plan, an Option may be either (i) an “Incentive Stock Option,” or “ISO,” within the meaning of Section 422 of the Code, (ii) a “Nonstatutory (Nonqualified) Stock Option,” or “NSO,” or (iii) any other type of option encompassed by the Code.
(p) “Other Award” means an Award, other than a Stock Option, a Stock Appreciation Right, Restricted Stock, a Restricted Stock Unit, a Performance Unit or a Performance Share granted under this Plan, including the right to receive cash bonuses or other cash incentive compensation or Stock or a fixed or variable share denominated unit granted under this Plan or any deferred compensation plan established from time to time by the Company.
(q) “Original Effective Date” means May 16, 2018.
(r) “Participant” means any Employee designated by the Committee to participate in the Plan.
(s) “Performance-Based Award” means an Award that is subject to Performance Goals.
(t) “Performance Criteria” means criteria or objectives selected by the Committee, which are to be satisfied or met during the applicable Period of Restriction or performance period, as the case may be, as a condition to or with respect to the determination of the amount of shares of Stock or cash to be paid with respect to Award(s) subject to Performance Criteria. Performance Goals may, but need not be, based on one or more of the following Performance Criteria: (i) return measures (including, but not limited to, total stockholder return, return on assets and return on equity), (ii) income or earnings measures (including, but not limited to, earnings per share, net income, net interest income, net interest margin, and non-interest income), (iii) revenue measures, (iv) expense measures (including, but not limited to, expenses, operating efficiencies, efficiency ratios, and non-interest expense), (v) balance sheet measures (including, but not limited to, assets, loans, charge-offs, allowance for loan losses, non-performing assets, deposits, asset quality, and investments), (vi) wealth management measures (including, but not limited to, assets under management, held in trust or in custody, client growth, client retention and wealth management fees), (vii) enterprise risk management measures (including, but not limited to, interest-sensitivity gap levels, regulatory compliance, satisfactory internal or external audits and financial ratings), (viii) the Fair Market Value of shares of Stock, (ix) employee, customer or market-related objectives (including, but not limited to, employee satisfaction, customer growth, customer retention, customer satisfaction, number or type of customer relationships, and market share), (x) achievement of balance sheet or income statement objectives, (xi) individual Participant or team performance objectives (including, but not limited to, key performance indicators, strategic or operational objectives, or project or personnel management), or (xii) other financial, accounting or quantitative objectives established by the Committee.
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(u) “Performance Goals” means the goals established by the Committee for a Period of Restriction or performance period based upon the Performance Criteria selected by the Committee. The Performance Criteria and objectives constituting Performance Goals may include adjustments to include or exclude the effects of certain events as may be determined by the Committee, including, but not limited to: changes in accounting standards or principles, tax law, or other such laws or provisions affecting reported results; an acquisition or divestiture; discontinued operations; claims, judgments or settlements; or other unusual, infrequently occurring or unplanned items, such as restructuring expenses, acquisition expenses, including writedowns or expenses related to goodwill and other intangible assets, stock offerings, and stock repurchases and provision for loan losses. The Performance Goals may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated or other external or internal measures and may be based on or adjusted for any other objective goals, events, or occurrences established by the Committee. The Performance Criteria and objectives constituting Performance Goals may be particular to a line of business, Subsidiary, division or other unit or the Company generally.
(v) “Performance Share” means a right to receive a payment in cash or shares of Stock equal to the value of a Performance Share as determined by the Committee based on performance and pursuant to Section 10 of the Plan.
(w) “Performance Unit” means a right to receive a payment equal to the value of a Performance Unit as determined by the Committee based upon performance and pursuant to Section 10 of the Plan.
(x) “Period of Restriction” means the period during which the transfer of shares of Restricted Stock is restricted pursuant to Section 9.2 of the Plan.
(y) “Plan” means this First Midwest Bancorp, Inc. 2018 Stock and Incentive Plan, as set forth herein and any amendments and restatements hereto.
(z) “Predecessor Plan” means the First Midwest Bancorp, Inc. Omnibus Stock and Incentive Plan, as from time to time amended.
(aa) “Predecessor Plan Award” means an award outstanding under the Predecessor Plan as of the Original Effective Date.
(bb) “Qualifying Termination” means termination of a Participant’s employment with the Company and all Subsidiaries upon a Change in Control or within the 24 months after a Change in Control, which termination of employment is either by the Company or Subsidiary without cause or by the Participant for good reason. Whether a termination of employment is without cause or for good reason shall be determined under the terms of the employment agreement to which the Participant is a party or of a severance plan applicable to the Participant. If the Participant is not a party to an employment agreement or covered by a severance plan, cause shall be determined under the definition of “Cause” set forth in this Plan, unless otherwise defined in the Award Agreement in which case the Award Agreement shall control, and good reason shall be determined under the definition, if any, set forth in the Award Agreement.
(cc) “Restricted Stock” means Stock granted to a Participant pursuant to Section 9 of the Plan.
(dd) “Restricted Stock Unit” means a right to receive a payment equal to the value of a share of Stock pursuant to Section 9 of the Plan.
(ee) “Retirement” means termination of employment as an Employee for any reason (other than death or under circumstances determined by the Company or a Subsidiary to be Cause) on or after attaining the age and/or a combination of age and years of service with the Company and/or Subsidiary, if any, provided by the Committee in the applicable Award Agreement, or any amendment or modification thereof, as constituting “Retirement” for purposes of such Award.
(ff) “Rule 16b-3” means Rule 16b-3 or any successor or comparable rule or rules applicable to Awards granted under the Plan promulgated by the Securities and Exchange Commission under Section 16(b) of the Securities Exchange Act of 1934, as amended.
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(gg) “SAR” or “Stock Appreciation Right” means the right to receive a payment from the Company equal to the excess of the Fair Market Value of a share of stock at the date of exercise over a specified price fixed by the Committee, which shall not be less than 100% of the Fair Market Value of the Stock on the date of grant.
(hh) “Stock” means the Common Stock, par value $0.01 per share, of the Company.
(ii) “Subsidiary” means First Midwest Bank and any entity that is a subsidiary corporation of the Company, as that term is defined in Section 424(f) of the Code.
2.2 Gender and Number. Except when otherwise indicated by the context, words in the masculine gender when used in the Plan shall include the feminine gender, the singular shall include the plural, and the plural shall include the singular.
Section 3. Eligibility and Participation
3.1 Eligibility and Participation. Persons eligible to participate in this Plan include all Employees. The Committee may from time to time select those Employees to whom Awards shall be granted and shall determine the form, terms, conditions and amount of each Award. No Employee shall have any right to be granted an Award, or if previously granted an Award, to be granted a subsequent Award under this Plan.
4.1 Administration. The Committee shall be responsible for the administration of the Plan. The Committee, by majority action thereof (whether taken during a meeting or by written consent), shall determine the type or types of Awards to be made under the Plan and shall designate from time to time the Employees who are to be recipients of such Awards. The Committee is authorized to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to the Plan, to provide for conditions and assurances deemed necessary or advisable to protect the interests of the Company, and to make all other determinations necessary or advisable for the administration of the Plan, but only to the extent not contrary to the express provisions of the Plan. Determinations, interpretations, or other actions made or taken by the Committee pursuant to the provisions of the Plan shall be final and binding and conclusive for all purposes and upon all persons whomsoever. To the extent deemed necessary or advisable for purposes of Rule 16b-3 or otherwise, the Board may act as the Committee hereunder.
4.2 Delegation of Authority. The Committee may authorize the Chief Executive Officer of the Corporation and other senior officers of the Company to designate Employees to be recipients of Awards, to determine the terms, conditions, form and amount of any such Awards, and to take such other actions that the Committee is authorized to take under this Plan, provided that the Committee may not delegate to any person the authority to grant Awards to, or take other action with respect to, Participants who at the time of such Awards or action are subject to Section 16 of the Exchange Act. Authority delegated by the Committee under this Section 4.2 shall be exercised in accordance with the provisions of the Plan and any guidelines for the exercise of such authority that may from time to time be established by the Committee.
4.3 Award Agreements. Each Award shall be evidenced by an Award Agreement that shall be signed by an authorized officer of the Company and, if required, by the Participant. The Award Agreement shall contain such terms and conditions as may be authorized or approved by the Committee. An Award Agreement and any required signatures thereon or authorization or acceptance thereof may be in electronic format.
Section 5. Stock Subject to Plan
5.1 Number of Shares Available for Awards. The total number of shares of Stock that may be issued pursuant to Awards under the Plan may not exceed the sum of (a) 2,500,000, plus (b) the number of shares of Stock that are authorized, but not issued (including such shares of Stock subject to outstanding awards), under the Plan as of the Amendment and Restatement Effective Date, plus (c) the number of shares of Stock that were authorized, but not issued (including such shares of Stock subject to outstanding awards), under the Predecessor Plan as of the Original Effective Date. The aggregate number of shares of Stock available with respect to Awards under the Plan shall be reduced by one share for each share to which an Award relates. The exercise or settlement of an Option or SAR reduces the Shares available under the Plan by the total number of Shares to which the exercise or settlement of the Option or SAR relates, not just the net amount of shares of Stock actually issued upon exercise or settlement.
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Awards payable or settled solely in cash shall not reduce the number of shares available for issuance under the Plan. Shares of Stock issued in connection with awards that are assumed, converted or substituted pursuant to a merger, acquisition or similar transaction entered into by the Company or any of its Subsidiaries shall not reduce the number of Shares available for issuance under this Plan. The number of shares shall be subject to adjustment upon occurrence of any of the events indicated in Section 5.4. The shares to be delivered under the Plan may consist, in whole or in part, of authorized but unissued Stock or treasury Stock, not reserved for any other purpose.
5.2 Reuse of Shares. If shares of Stock subject to an outstanding Award under this Plan or a Predecessor Plan Award are not issued, or are cancelled by reason of the failure to earn the shares issuable under, or the forfeiture, termination, surrender, cancellation or expiration of, such Award or Predecessor Plan Award, then the shares of Stock subject to such Award or Predecessor Plan Award shall, to the extent of such non-issuance, forfeiture, termination, surrender, cancellation or expiration, be available for Awards under the Plan. All Predecessor Plan Awards outstanding on the Original Effective Date shall continue in full force and effect in accordance with their terms and the Predecessor Plan, and no provision of this Plan shall be deemed to amend or otherwise modify the rights or obligations of the holders of those Predecessor Plan Awards. In no event shall the following shares of Stock become available for issuance under this Section 5.2:
(a) Shares of Stock tendered or attested as payment of the exercise price of an Option or a Predecessor Plan Award;
(b) Shares of Stock tendered or withheld as payment of withholding taxes with respect to an Award or a Predecessor Plan Award;
(c) Shares of Stock reacquired by the Company using amounts received upon the exercise of an Option; and
(d) Shares of Stock not issued in connection with the exercise or settlement of a SAR.
5.3 Minimum Vesting Period. The Committee shall not grant any Award unless such Award upon grant satisfies the Minimum Vesting Period; provided, however, the Committee may permit vesting prior to the expiration of the Minimum Vesting Period in the event of a Participant’s death or Disability, or the occurrence of a Change in Control, and, provided further, that the Committee may grant Awards that do not satisfy the Minimum Vesting Period relating to an aggregate of five percent (5%) or fewer of the aggregate number of shares of Stock authorized for issuance under the Plan (which limitation shall be subject to adjustment as provided in Section 5.4 hereof).
5.4 Adjustment in Authorized Shares and Limitations. In the event of any change in the outstanding shares of Stock that occurs after the Original Effective Date by reason of a Stock dividend or split, recapitalization, merger, consolidation, combination, exchange of shares or other similar corporate change, the aggregate number of shares of Stock available for issuance under Section 5.1, the number of Shares subject to each outstanding Award and the other terms thereof, and the limitations set forth in Section 5.3, shall be adjusted appropriately by the Committee, whose determination shall be conclusive; provided, however, that fractional shares shall be rounded to the nearest whole share. The Committee, in its sole discretion, may also make appropriate adjustments in the terms of any Awards under the Plan to reflect or related to such changes or distributions and to modify any other terms of outstanding Awards, including modifications of Performance Goals and changes in the length of performance periods. Any adjustment of any Options or SARs under this Section 5.4 shall be made in a manner so as not to constitute a modification within the meaning of Section 424(h)(3) of the Code and Section 1.409A-1(b)(5)(D) of the regulations promulgated under Section 409A of the Code. The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on Participants under the Plan. Subject to the provisions of Section 14, without affecting the number of Shares reserved or available hereunder, the Committee may authorize the issuance or assumption of benefits under this Plan in connection with any merger, consolidation, acquisition of property or stock, or reorganization upon such terms and conditions as it may deem appropriate, subject to compliance with the rules under Section 424 of the Code, where applicable.
5.5 No Repricing Without Stockholder Approval. Notwithstanding anything in the Plan to the contrary, the Committee may not reprice Options or SARs granted under the Plan, nor may any Option or SAR under the Plan be surrendered to the Company as consideration for the grant of a new Option or SAR with a lower exercise price or exchanged for cash or another Award, nor may the Board amend the Plan to permit such repricing or exchange of Options or SARs granted under the Plan, unless the stockholders of the Company provide prior approval for such
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repricing, surrender, exchange or amendment. Adjustments pursuant to Section 5.4 shall not be considered a repricing.
6.1 Duration of Plan. This Plan shall remain in effect, subject to the Board’s right to earlier terminate the Plan pursuant to Section 15 hereof, until all shares of Stock subject to it shall have been issued or acquired pursuant to the provisions hereof. Notwithstanding the foregoing, no Award may be granted under the Plan on or after the tenth anniversary of the Original Effective Date.
7.1 Grant of Options. Subject to the terms and conditions of the Plan, Options may be granted to Participants at any time and from time to time as shall be determined by the Committee. The Committee shall have complete discretion in determining the number of Options granted to each Participant. The Committee may grant any type of Option to purchase Stock that is permitted by law at the time of grant.
7.2 Option Price. No Option granted pursuant to the Plan shall have an Option price that is less than the Fair Market Value of the Stock on the date the Option is granted.
7.3 Exercise of Options. Options awarded under the Plan shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall approve, either at the time of grant of such Options or pursuant to a general determination, and which need not be the same for all Participants. Each Option that is intended to qualify as an Incentive Stock Option pursuant to Section 422 of the Code, and each Option that is intended to qualify as another type of ISO that may subsequently be authorized by law, shall comply with the applicable provisions of the Code pertaining to such Options.
7.4 Payment. Options shall be exercised by the delivery of a written notice of exercise to the Company, setting forth the number of shares of Stock with respect to which the Option is to be exercised, accompanied by full payment for the Stock. The Option price upon exercise of any Option shall be payable to the Company in full either:
(a) in cash or its equivalent (including, for this purpose, the proceeds from a broker-assisted, cashless exercise),
(b) by tendering shares of Stock having an aggregate Fair Market Value at the time of exercise equal to the total Option price (including, for this purpose, Stock deemed tendered by attestation of ownership),
(c) by any other means that the Committee determines to be consistent with the Plan’s purpose and applicable law, or
(d) by a combination of (a), (b), and (c).
As soon as practicable after receipt of each notice and full payment, the Company shall deliver to the Participant a certificate or certificates (or book-entries) representing the acquired shares of Stock. For purposes of the foregoing, Fair Market Value shall be determined on the date of Option exercise. No dividends or dividend equivalent amounts shall be paid with respect to any Options.
7.5 Limitations on ISOs. Not more than 2,000,000 shares of Stock authorized for issuance under this Plan may be issued pursuant to Incentive Stock Options. The foregoing limitation shall be subject to adjustment under Section 5.4. Notwithstanding anything in the Plan to the contrary, to the extent required from time to time by the Code, the following additional provisions shall apply to the grant of Options that are intended to qualify as Incentive Stock Options (as such term is defined in Section 422 of the Code):
(a) The aggregate Fair Market Value (determined as of the date the Option is granted) of the shares of Stock with respect to which Incentive Stock Options are exercisable for the first time by any Participant during any calendar year (under all plans of the Company) shall not exceed $100,000 or such other amount as may subsequently be
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specified by the Code; provided that, to the extent that such limitation is exceeded, any excess Options (as determined under the Code) shall be deemed to be Nonstatutory (Nonqualified) Stock Options.
(b) Any Incentive Stock Option authorized under the Plan shall contain such other provisions as the Committee shall deem advisable, but shall in all events be consistent with and contain or be deemed to contain all provisions required in order to qualify the Options as Incentive Stock Options.
(c) All Incentive Stock Options must be granted prior to March 20, 2028, the tenth anniversary of the date on which this Plan was originally adopted by the Board.
(d) Unless exercised, terminated, or cancelled sooner, all Options shall expire no later than ten years after the date of grant.
7.6 Restrictions on Stock Transferability. The Committee shall impose such restrictions on any shares of Stock acquired pursuant to the exercise of an Option under the Plan as it may deem advisable, including, without limitation, restrictions under applicable Federal securities laws, under the requirements of any stock exchange upon which such shares of Stock are then listed and under any blue sky or state securities laws applicable to such shares.
7.7 Effect of Termination of Employment. The disposition of each Option held by a Participant in the event of termination of employment as an Employee shall be determined by the Committee and set forth in the applicable Award Agreement or any amendment or modification thereof. To the extent the applicable Award Agreement or amendment or modification thereof does not expressly provide for such disposition, the disposition of the Option shall be determined in accordance with Sections 7.8 and 7.9 below.
7.8 Termination of Employment Due to Death, Disability or Retirement. In the event the employment of a Participant is terminated by reason of death, Disability or Retirement, any outstanding Options then exercisable may be exercised at any time prior to the expiration date of the Options or within three (3) years after such date of termination of employment, whichever period is shorter. For purposes of the preceding sentence, in the event such termination is due to death or Disability, then any outstanding Options shall vest 100% and be deemed exercisable in full as of such termination. However, in the case of Incentive Stock Options, the favorable tax treatment prescribed under Section 422 of the Code shall not be available if such Options are not exercised within three (3) months after the date of termination, or twelve (12) months in the case of death or Disability, provided such Disability constitutes total and permanent disability as defined in Section 22(e)(3) of the Code.
7.9 Termination of Employment other than Due to Death, Disability or Retirement. If the employment of the Participant shall terminate for any reason other than death, Disability or Retirement, the rights under any then outstanding Option granted pursuant to the Plan shall terminate upon the expiration date of the Option or one month after such date of termination of employment, whichever first occurs; provided, however, that in the event such termination of employment occurs after a Change-in-Control (as defined in Section 14.2 of the Plan), the rights under any then outstanding Option granted pursuant to the Plan shall terminate upon the expiration date of the Option or three (3) years after such date of termination of employment, whichever first occurs. Notwithstanding the foregoing, where termination of employment is involuntarily for Cause, rights under all Options shall terminate immediately upon termination of employment.
7.10 Nontransferability of Options. No Option granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution. Further, all Options granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant.
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Section 8. Stock Appreciation Rights
8.1 Grant of SARs. Subject to the terms and conditions of the Plan, SARs may be granted to Participants at any time and from time to time as shall be determined by the Committee.
8.2 Exercise of SARs. To the extent exercisable and not expired, forfeited, cancelled or otherwise terminated, SARs granted under the Plan shall be exercisable at such times and be subject to such restrictions and conditions as provided in the applicable Award Agreement, which need not be the same for all Participants. SARs may be exercised upon whatever terms and conditions the Committee, in its sole discretion, imposes upon the SARs, which may include, but are not limited to, a corresponding proportional reduction in Options or other Awards granted in tandem with such SARs.
8.3 Payment of SAR Amount. Upon exercise of the SAR, the holder shall be entitled to receive payment of an amount determined by multiplying:
(a) The difference between the Fair Market Value of a share of Stock at the date of exercise over the price fixed by the Committee at the date of grant (which price shall not be less than 100% of the Fair Market Value of a share of Stock on the date of grant), by
(b) The number of shares with respect to which the SAR is exercised.
No dividends or dividend equivalent amounts shall be paid with respect to any SARs.
8.4 Form and Timing of Payment. Payment to a Participant of the amount due upon SAR exercise will be made in shares of Stock having a Fair Market Value as of the date of exercise equal to the amount determined under Section 8.3 above, except as the Committee may otherwise provide for the payment in cash in the applicable Award Agreement or any amendment or modification thereof.
8.5 Term of SAR. The term of a SAR granted under the Plan shall not exceed ten years and one day.
8.6 Effect of Termination of Employment. The disposition of each SAR held by a Participant in the event of termination of employment as an Employee shall be determined by the Committee and set forth in the applicable Award Agreement or any amendment or modification thereof. To the extent the applicable Award Agreement or amendment or modification thereof does not expressly provide for such disposition, the disposition of the SAR shall be determined in the same manner as applicable to Options set forth in Sections 7.8 and 7.9 above.
8.7 Nontransferability of SARs. No SAR granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all SARs granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant.
Section 9. Restricted Stock and Restricted Stock Units
9.1 Grant of Restricted Stock or Restricted Stock Units. Subject to the terms and conditions of the Plan, the Committee, at any time and from time to time, may grant shares of Restricted Stock or Restricted Stock Units under the Plan to such Participants and in such amounts as it shall determine. Except as otherwise provided in this Section 9, after the last day of the Period of Restriction (a) Shares of Restricted Stock covered by each Restricted Stock Award made under the Plan shall become freely transferable by the Participant, and (b) the Participant shall be entitled to receive one share of Stock with respect to each Restricted Stock Unit.
9.2 Transferability. Except as provided in Section 9.10 hereof, the shares of Restricted Stock and Restricted Stock Units granted hereunder may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated for such period of time as shall be determined by the Committee and shall be specified in the applicable Award Agreement, or upon earlier satisfaction of other conditions (which may include the attainment of Performance Goals), as specified by the Committee, in its sole discretion, and set forth in the applicable Award Agreement.
9.3 Other Restrictions. The Committee shall impose such other restrictions on any shares of Restricted Stock or Restricted Stock Units granted pursuant to the Plan as it may deem advisable, including, without limitation,
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restrictions under applicable Federal or state securities laws, and may legend the certificates or book-entries representing Restricted Stock to give appropriate notice of such restrictions.
9.4 Voting Rights. Participants holding shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those shares during the Period of Restriction. A Participant will have no voting rights with respect to Restricted Stock Units.
9.5 Dividends and Other Distributions. Except as otherwise provided in the applicable Award Agreement, during the Period of Restriction, Participants holding shares of Restricted Stock or Restricted Stock Units granted hereunder shall be credited with dividend equivalent amounts equal to all dividends and other distributions paid with respect to those shares of Restricted Stock or the number of shares covered by such Restricted Stock Units while they are so held, and shall be entitled to receive any such dividend equivalent amounts when the Period of Restriction has lapsed. If any such dividends or distributions are paid in shares of Stock, the shares shall be subject to the same restrictions on transferability as the shares of Restricted Stock or Restricted Stock Units with respect to which they were paid.
9.6 Effect of Termination of Employment. The disposition of each Restricted Stock or Restricted Stock Unit Award held by a Participant in the event of termination of employment as an Employee shall be determined by the Committee and set forth in the applicable Award Agreement or any amendment or modification thereof. To the extent the applicable Award Agreement or amendment or modification thereof does not expressly provide for such disposition, the disposition of the Restricted Stock or Restricted Stock Unit Award shall be determined in accordance with Sections 9.7, 9.8 and 9.9 below.
9.7 Termination of Employment Due to Retirement. In the event a Participant’s employment terminates due to Retirement, the Period of Restriction applicable to the Restricted Stock or the Restricted Stock Units shall automatically terminate and, except as otherwise provided in Section 9.3, the shares of Restricted Stock shall thereby be free of restrictions and freely transferable; provided, however, that the Committee, in its sole discretion, may waive the restrictions remaining on any or all shares of Restricted Stock or any and all Restricted Stock Units, or add such new restrictions to those shares of Restricted Stock or Restricted Stock Units as it deems appropriate.
9.8 Termination of Employment Due to Death or Disability. In the event a Participant terminates his employment with the Company because of death or Disability during the Period of Restriction, the restrictions applicable to the shares of Restricted Stock or to the Restricted Stock Units pursuant to Section 9.2 hereof shall automatically terminate and, except as otherwise provided in Section 9.3, the shares of Restricted Stock shall thereby be free of restrictions and freely transferable.
9.9 Termination of Employment for Reasons other than Death, Disability or Retirement. In the event that a Participant terminates his employment with the Company for any reason other than those set forth in Sections 9.7 and 9.8 hereof during the Period of Restriction, then any shares of Restricted Stock and any Restricted Stock Units still subject to restrictions at the date of such termination automatically shall be forfeited and returned to the Company; provided, however, that, in the event of an involuntary termination of the employment of a Participant by the Company other than for Cause, the Committee in its sole discretion may waive the automatic forfeiture of any or all such shares or units, and/or may add such new restrictions to such shares of Restricted Stock or Restricted Stock Units as it deems appropriate.
9.10 Nontransferability. No shares of Restricted Stock or Restricted Stock Units granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution until the termination of the applicable Period of Restriction. All rights with respect to Restricted Stock or Restricted Stock Units granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant.
Section 10. Performance Units and Performance Shares
10.1 Grant of Performance Units or Performance Shares. Subject to the terms and conditions of the Plan, Performance Units or Performance Shares may be granted to Participants at any time and from time to time as shall be determined by the Committee. The Committee shall have complete discretion in determining the number of Performance Units or Performance Shares granted to each Participant.
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10.2 Value of Performance Units and Performance Shares. Each Performance Unit shall have the initial value set forth in the Award Agreement and each Performance Share initially shall represent one share of Stock. The Committee shall establish Performance Goals in its discretion, which, depending on the extent to which they are met, will determine the ultimate value of the Performance Unit or number of shares of Stock payable to the Participant. The time period during which the Performance Goals must be met shall be called a performance period and also is to be determined by the Committee.
10.3 Payment of Performance Units and Performance Shares. After a performance period has ended, the holder of a Performance Unit or Performance Share shall be entitled to receive the value thereof as determined in accordance with Section 10.2.
10.4 Form and Timing of Payment. Payment in Section 10.3 above shall be made in cash, stock, or a combination thereof as determined by the Committee. Payment may be made in a lump sum or installments as prescribed by the Committee. To the extent that dividends or dividend equivalents are credited to Performance Units or Performance Shares, such amounts shall not be paid until the holder of such Performance Units or Performance Shares is entitled to receive the value thereof in accordance with Section 10.3. If any payment is to be made on a deferred basis, the Committee may provide for the payment of dividend equivalents or interest during the deferral period. Notwithstanding the foregoing, in no event may any dividends or dividend equivalents be paid in respect of Performance Units or Performance Shares unless and until the Award to which they relate vests.
10.5 Effect of Termination of Employment. The disposition of each Performance Unit or Performance Share held by a Participant in the event of termination of employment as an Employee, shall be determined by the Committee and set forth in the applicable Award Agreement or any amendment or modification thereof. To the extent the applicable Award Agreement or amendment or modification thereof does not expressly provide for such disposition, the disposition of the Performance Units or Performance Shares shall be determined in accordance with Sections 10.6 and 10.7 below.
10.6 Termination of Employment Due to Death, Disability or Retirement. In the case of death, Disability or Retirement, the holder of a Performance Unit or Performance Share shall receive pro rata payment based on the number of months’ service during the performance period but based on the achievement of Performance Goals during the entire performance period. Payment shall be made at the time payments are made to Participants who did not terminate service during the performance period.
10.7 Termination of Employment for Other Reasons. In the event that a Participant terminates employment with the Company for any reason other than death, Disability or Retirement, all Performance Units and Performance Shares shall be forfeited; provided, however, that in the event of an involuntary termination of the employment of the Participant by the Company other than for Cause, the Committee, in its sole discretion, may waive the automatic forfeiture provisions and pay out on a pro rata basis.
10.8 Nontransferability. No Performance Units or Performance Shares granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution until the termination of the applicable performance period. All rights with respect to Performance Units and Performance Shares granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant.
10.9 Performance-Based Awards. If the Committee determines to grant Performance Units or Performance Shares under this Section 10, or the Committee determines to provide that an Award under Section 7, 8, 9 or 11 shall be a Performance-Based Award, the Committee shall establish the Performance Goal or Performance Goals, the performance period or Period of Restriction and the amount that may be earned under the Award with respect to the achievement of the Performance Goals. Upon completion of the performance period or Period of Restriction, the Committee shall determine the level of the Performance Goals achieved and the amount of the Award payable as a result thereof. In making such determination, the Committee may adjust or eliminate the amount payable under the Award to take into account additional factors as the Committee may deem appropriate to the assessment of performance for the performance period.
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11.1 Grant of Other Awards. Subject to the terms and conditions of the Plan, Other Awards (including, but not limited to, cash bonuses and other cash incentive compensation awards) may be granted to Participants at any time and from time to time as shall be determined by the Committee.
11.2 Terms of Other Awards. Other Awards (including, but not limited to, cash bonuses and other cash incentive compensation awards) may be made free-standing or in tandem with, in replacement of, or as alternatives to Awards under Sections 7, 8, 9 or 10 of this Plan or of any other incentive or employee benefit plan of the Company. An Other Award may provide for payment in cash or in Stock or a combination thereof. Any cash bonus or other cash incentive compensation awards shall be on such terms and conditions and may have such performance goals as may be determined by the Committee in its discretion. To the extent that dividends or dividend equivalents are credited under such Other Awards, such amounts shall not be paid until the underlying Other Award is vested and paid.
Section 12. Beneficiary Designation
12.1 Beneficiary Designation. Each Participant under the Plan may name, from time to time, any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his or her death before he or she receives any or all of such benefit. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Committee, and will be effective only when filed by the Participant in writing with the Committee during the Participant’s lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant’s death shall be paid to the Participant’s estate.
Section 13. Rights of Employees
13.1 Employment. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant’s employment at any time, nor confer upon any Participant any right to continue in the employ of the Company.
13.2 Participation. No employee shall have a right to be selected as a Participant, or, having been so selected, to be selected again as a Participant.
Section 14. Effect of Change in Control; Double-Trigger Vesting
14.1 In General. Notwithstanding any other provision of this Plan to the contrary and except as provided by the Committee in the applicable Award Agreement, the provisions of this Section 14 shall apply in the event of a Change in Control.
14.2 Definition. For purposes of the Plan, a “Change in Control” shall mean any of the following events:
(a) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than (i) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a Subsidiary, or (ii) a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 25% or more of the total voting power of the then outstanding shares of capital stock of the Company entitled to vote generally in the election of directors (the “Voting Stock”); provided, however, that the following shall not constitute a Change-in-Control: (A) such person becomes a beneficial owner of 25% of more of the Voting Stock as the result of an acquisition of such stock directly from the Company, or (B) such person becomes a beneficial owner of 25% or more of the Voting Stock as a result of the decrease in the number of outstanding shares caused by the repurchase of shares by the Company, or (C) such person becomes a beneficial owner of 25% or more of the Voting Stock without any plan or intention to seek or affect control of the Company, if such person promptly enters into an irrevocable commitment promptly to divest, and thereafter promptly divests, such shares of Voting Stock so that such person ceases to beneficially own 25% or more of the Voting Stock; provided, further, that in the event a person described in clause (A) or (B) shall thereafter increase (other than in circumstances described in clause (A) or (B)) beneficial ownership of stock representing more than 1% of the Voting Stock, such person shall then be deemed to become a beneficial owner of 25% or more of the Voting Stock for purposes of this paragraph (a), provided such person
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continues to beneficially own 25% or more of the Voting Stock after such subsequent increase in beneficial ownership; or
(b) During any period of two (2) consecutive years, individuals, who at the beginning of such period constitute the Board of Directors of the Company, and any new director, whose election by the Board of Directors or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3rds) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or
(c) The consummation of, a reorganization, merger or consolidation, the sale or other disposition of all or substantially all of the assets, or a similar transaction or series of transactions involving the Company (a “Business Combination”) in each case, unless (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Voting Stock immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the total voting power represented by the voting securities entitled to vote generally in the election of directors of the Company or the corporation resulting from the Business Combination (including, without limitation, a corporation that as a result of the Business Combination owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries), in substantially the same proportions as their ownership immediately prior to the Business Combination of the Voting Stock of the Company, and (2) at least a majority of the members of the board of directors of the Company or such corporation resulting from the Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or action of the Incumbent Board, providing for such Business Combination; or
(d) The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company.
The Board has final authority to determine the exact date on which a Change in Control has been deemed to have occurred under (a), (b), (c) and (d) above.
Notwithstanding the foregoing, if the payment of an amount under an Award constitutes the payment of deferred compensation subject to Section 409A of the Code and the time or form of such payment is changed due to a Change in Control, such change in the time or form of payment shall not occur unless the event constituting the Change in Control is also a “change in control event” within the meaning of Code Section 409A and the regulations promulgated thereunder.
14.3 Vesting if No Substitute Award. Upon a Change in Control, except to the extent that another Award meeting the requirements of Section 14.4 (a “Substitute Award”) is provided to the Participant pursuant to Section 5.4 to replace an outstanding Award (the “Substituted Award”):
(a) Each SAR and Option then outstanding shall become fully vested and exercisable;
(b) Any remaining Period of Restriction applicable to Restricted Stock or Restricted Stock Units herein shall automatically terminate and the shares of Restricted Stock shall thereby be free of restrictions and be fully transferable, and distribution of shares of Stock with respect to Restricted Stock Units shall occur pursuant to Section 9.1 above;
(c) Each Award subject to Performance Goals held by the Participant shall be deemed earned and shall be paid to the extent of the greater of (i) the extent, as determined by the Committee, to which the Performance Goals applicable to such performance-based Award have been met during the applicable performance period up through and including the date of the Change in Control or (ii) the target number of shares of stock or target value of such Award established at the date of grant multiplied by the percentage of the performance period that has elapsed as of the date of the Change in Control; and
(d) Any Other Award then outstanding shall become fully vested.
14.4 Substitute Awards. An Award shall meet the conditions of this Section 14.4 (and qualify as a Substitute Award) if:
(a) it has a value at least equal to the value of the Substituted Award;
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(b) it relates to publicly traded equity securities of the Company or its successor in the Change in Control or another entity that is affiliated with the Company or its successor following the Change in Control; and
(c) its other terms and conditions are not less favorable to the Participant than the terms and conditions of the Substituted Award (including the double-trigger vesting provisions that would apply in the event of a subsequent Change in Control and the provisions of Section 14.5).
Without limiting the generality of the foregoing, the Substitute Award may take the form of a continuation of the Substituted Award if the requirements of the preceding sentence are satisfied. The determination of whether the conditions of this Section 14.4 are satisfied shall be made by the Committee, as constituted immediately before the Change in Control, in its sole discretion.
14.5 Double-Trigger Vesting of Substitute Awards Upon Qualifying Termination. In the event the Participant has a Qualifying Termination in connection with or during the period of two (2) years after a Change in Control, all Substitute Awards held by the Participant to the extent not vested as of such Qualifying Termination, shall become fully earned and vested, and if applicable, exercisable and free of restrictions.
Section 15. Amendment, Modification and Termination of Plan
15.1 Amendment, Modification, Suspension and Termination of Plan. The Board may terminate the Plan or any portion thereof at any time, and may amend or modify the Plan from time to time in such respects as the Board may deem advisable in order that any Awards thereunder shall conform to any change in applicable laws or regulations or in any other respect the Board may deem to be in the best interests of the Company; provided, however, that no such amendment or modification shall, without stockholder approval:
(a) except as provided in Section 5.4, increase the number of shares of Stock which may be issued under the Plan;
(b) expand the types of Awards available to Participants under the Plan;
(c) materially expand the class of persons eligible to participate in the Plan;
(d) delete or limit the provisions in Sections 5.5, 7.2 and 8.3 prohibiting the repricing of Options and SARs, as applicable, or, except as provided under Section 5.4, reduce the price at which shares of Stock may be offered under Options or the grant date price applicable to a SAR;
(e) extend the termination date for making Awards under the Plan;
(f) amend Section 5.5; or
(g) if such approval is required under (i) the rules and regulations of the NASDAQ Global Select Market or another national exchange on which the Stock is then listed, or (ii) other applicable law, rules or regulations.
15.2 Amendment or Modification of Awards. The Committee may amend or modify any outstanding Awards in any manner to the extent that the Committee would have had the authority under the Plan initially to make such Awards as so modified or amended, including without limitation, to change the date or dates as of which Awards may be exercised, to remove the restrictions on Awards, or to modify the manner in which Awards are determined and paid. The Committee may make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 5.4 hereof) affecting the Company or the financial statements of the Company or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan. The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on Participants under the Plan.
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15.3 Effect on Outstanding Awards. No such amendment, modification or termination of the Plan pursuant to Section 15.1 above, or amendment or modification of an Award pursuant to Section 15.2 above, shall materially adversely alter or impair any outstanding Awards without the consent of the Participant affected thereby.
16.1 Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy Federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of the Plan.
16.2 Share Withholding. With respect to withholding required upon the exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock, or upon any other taxable event arising as a result of awards granted hereunder, Participants may elect to satisfy the withholding requirement, in whole or in part, by having the Company withhold shares of Stock having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax that would be imposed on the transaction; provided, however, that in the event a deferral election is in effect with respect to the shares deliverable upon exercise of an Option, then the Participant may only elect to have such withholding made from the Stock tendered to exercise such Option. All such elections shall be irrevocable, made in writing, signed by the Participant, and shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate.
17.1 Indemnification. Each person who is or shall have been a member of the Committee or of the Board shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s Certificate of Incorporation or By-laws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
Section 18. Additional Provisions
18.1 Requirements of Law. The granting of Awards and the issuance of shares of Stock upon the exercise of an Option shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
18.2 Governing Law. The Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Delaware.
18.3 Other Restrictions, Limitations and Recoupment (Clawback). A Participant’s rights, payments, and benefits with respect to any Award shall be subject to reduction, cancellation, forfeiture, or recoupment (clawback), delayed or deferred payment or holding period requirements:
(a) Upon the occurrence of certain events or circumstances specified by the Committee in the applicable Award Agreement, in addition to any otherwise applicable vesting or performance conditions of an Award. Such events may include, but shall not be limited to, (i) termination of employment for cause, (ii) fraud, illegality or misconduct, (iii) violation of any Company and/or Subsidiary code of ethics, conflict of interest, insider trading or similar policy or code of conduct applicable to the Participant, (iv) breach of any non-competition, non-solicitation, confidentiality, or other restrictive covenant that may apply to the Participant, (v) other conduct by the Participant that is detrimental to the business or reputation of the Company and/or its Subsidiaries, (vi) failure to comply with or satisfy risk management requirements or objectives or (vii) requirements of applicable laws, rules or regulations.
(b) In accordance with the forfeiture or repayment provisions of any recoupment (clawback) policy of the Company or any Subsidiary as now in effect or as may be adopted by the Company or any Subsidiary from time to
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time, or forfeiture or repayment requirements imposed under applicable laws, rules or regulations or any applicable securities exchange listing standards, including, but not limited to, as required by the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or as otherwise required under applicable laws, rules or regulations.
(c) If (i) events or circumstances described in such forfeiture or payment provisions or requirements occur, (ii) the Company is required to prepare an accounting restatement due to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under the securities laws, and the Participant knowingly or grossly negligently engaged in the misconduct, knowingly or grossly negligently failed to prevent the misconduct, or is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002 (and not otherwise exempted), or (iii) other circumstances subjecting the Participant to the obligation to repay occur.
18.4 Election to Defer. To the extent provided by the Committee under this Plan or an applicable deferral plan established by the Company or a Subsidiary, the receipt of payment of cash or delivery of shares of Stock that would otherwise be due to a Participant pursuant to an Award hereunder, other than Options and SARs, may be deferred at the election of the Participant. Any such deferral elections and the payment of any amounts so deferred shall be made in accordance with such rules and procedures as the Committee may establish under this Plan or the applicable deferral plan, which rules and procedures shall comply with Section 409A of the Code.
18.5Code Section 409A. This Plan is intended to comply and shall be administered in a manner that is intended to comply with Code Section 409A and shall be construed and interpreted in accordance with such intent. To the extent that an Award or the payment, settlement or deferral thereof is subject to Code Section 409A, the Award shall be granted, paid, settled or deferred in a manner that will comply with Section 409A, including regulations or other guidance issued with respect thereto (collectively, “Section 409A”), except as otherwise determined by the Committee. Any provision of this Plan that would cause the grant of an Award or the payment, settlement or deferral thereof to fail to satisfy Section 409A shall be amended to comply with Section 409A on a timely basis, which may be made on a retroactive basis, in accordance with regulations and other guidance issued under Section 409A. In the case of amounts not intended to be deferrals of compensation subject to Section 409A, payment or settlement of amounts under such Awards shall occur not later than March 15 of the year following the year in which the Participant has a legally-binding right to payment or settlement. In the case of amounts intended to be deferrals of compensation subject to Section 409A, the initial deferral election shall be made and become irrevocable not later than December 31 of the year immediately preceding the year in which the Participant first performs services related to such compensation, provided that the timing of such initial deferral election may be later as provided in Section 409A with respect to initial participation in the Plan and for “performance-based compensation” as defined under Section 409A. If an amount payable under an Award as a result of the separation from service (other than due to death) occurring while the Participant is a “specified employee” constitutes a deferral of compensation subject to Section 409A, then payment of such amount shall not occur until six (6) months and a day after the date of Participant’s “separation from service” except as permitted under Section 409A.
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