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Section 1: DEF 14A (DEF 14A)

DEF 14A
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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant To Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.     )

Filed by the Registrant    

Filed by a Party other than the Registrant    

Check the appropriate box:

 

 

Preliminary Proxy Statement

 

   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

Definitive Proxy Statement

    

 

Definitive Additional Materials

    

 

Soliciting Material Pursuant to Section 240.14a-12

    

STATE STREET CORPORATION

 

(Name of Registrant as Specified in its Charter)

 

 

(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 

 

No fee required.

 

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

  (1)

Title of each class of securities to which transaction applies:

 

       

 

 

  (2)

Aggregate number of securities to which transaction applies:

 

       

 

 

 

  (3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

       

 

 

 

  (4)

Proposed maximum aggregate value of transaction:

 

       

 

 

 

  (5)

Total fee paid:

 

       

 

 

 

 

Fee paid previously with preliminary materials.

 

 

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.

 

  (1)

Amount Previously Paid:

 

       

 

 

  (2)

Form, Schedule or Registration Statement No.:

 

       

 

 

  (3)

Filing Party:

 

       

 

 

  (4)

Date Filed:

 

       

 

 


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LOGO

Joseph L. Hooley

Chairman and Chief Executive Officer

Kennett F. Burnes

Lead Director

April 6, 2017

Dear Shareholder:

We cordially invite you to attend the 2017 annual meeting of shareholders of State Street Corporation. The meeting will be held at One Lincoln Street, 36th Floor, Boston, Massachusetts, on May 17, 2017, at 9:00 a.m. Eastern Time. The proxy statement and annual meeting provide an important opportunity for us to communicate with you as shareholders, and for you to communicate with us, on important topics such as our performance, corporate governance, the effectiveness of the Board of Directors and executive compensation.

In 2016, we focused on four strategic priorities: strengthen our foundation, deliver highly valued services and solutions to our clients, engage our people and drive our strategy. Additionally, we continued to advance our strong culture of Risk Excellence, improve our capital position and control expenses. We performed well against our strategic goals; however, 2016 financial results were affected by continued low interest rates and slow economic growth as well as geopolitical events, market volatility and heightened regulatory demands. Despite this challenging economic, market and regulatory environment, we generated strong shareholder returns in 2016 with earnings per share and return on average common equity exceeding 2015 results.

Details regarding admission to the meeting and the business to be conducted are more fully described in the accompanying notice of annual meeting and proxy statement. Whether or not you plan to attend the meeting, please carefully review the enclosed proxy statement and then cast your vote. We urge you to vote regardless of the number of shares you hold. To be sure that your vote will be received in time, please cast your vote by your choice of available means at your earliest convenience. Your vote is very important to us.

We look forward to seeing you at the annual meeting. Your continued interest in State Street is very much appreciated.

 

Sincerely,

LOGO

  

LOGO

 

   

PLEASE NOTE: If you plan to attend the meeting, please allow time for registration and security clearance. You will be asked to present a valid picture identification acceptable to our security personnel, such as a driver’s license or passport. If your State Street shares are held in “street name” through a broker, bank or other nominee, you should also bring proof of beneficial ownership (for further details, see “Meeting Admission” in the attached Notice of State Street Corporation 2017 Annual Meeting of Shareholders). For security purposes, you and your bags are subject to search prior to your admittance to the meeting, and no cameras, recording equipment, mobile phones or other electronic devices, large bags or packages are permitted in the meeting. Public fee-based parking is available at State Street’s headquarters at One Lincoln Street (entrance from Kingston Street). Other public fee-based parking facilities available near One Lincoln Street include the LaFayette City Center and the Hyatt Hotel (entrances from Avenue de LaFayette). South Station is the closest MBTA station to One Lincoln Street.

   

State Street Corporation

One Lincoln Street

Boston, MA 02111-2900


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LOGO

NOTICE OF STATE STREET CORPORATION 2017 ANNUAL MEETING OF SHAREHOLDERS

 

Date   

May 17, 2017

Time   

9:00 a.m., Eastern Time

Place   

One Lincoln Street, 36th Floor, Boston, Massachusetts

Purpose    1.   

To elect 10 directors

   2.   

To approve an advisory proposal on executive compensation

   3.   

To recommend, by advisory proposal, the frequency of future advisory proposals on executive compensation

   4.   

To approve the 2017 Stock Incentive Plan

   5.   

To ratify the selection of Ernst & Young LLP as State Street’s independent registered public accounting firm for the year ending December 31, 2017

   6.   

To act upon such other business as may properly come before the meeting and any adjournments thereof

Record Date   

The directors have fixed the close of business on March 10, 2017, as the record date for determining shareholders entitled to notice of and to vote at the meeting.

Meeting Admission   

If you plan to attend the meeting, please allow time for registration and security clearance. You will be asked to present a valid picture identification acceptable to our security personnel, such as a driver’s license or passport. If your State Street shares are held in “street name” through a broker, bank or other nominee, your name does not appear on our list of shareholders, and these proxy materials are being forwarded to you by your broker, bank or other nominee. If you hold in “street name” and wish to attend the annual meeting, in addition to a valid form of picture identification, you will be required to present a letter or account statement showing that you were a beneficial owner of our shares on the record date. For security purposes, you and your bags are subject to search prior to your admittance to the meeting. In addition, cameras, recording equipment, mobile phones or other electronic devices, large bags or packages will not be permitted in the meeting.

Voting by Proxy   

Please submit a proxy card or, for shares held in “street name,” voting instruction form, as soon as possible so your shares can be voted at the meeting. You may submit your proxy card or voting instruction form by mail. If you are a registered shareholder, you may also vote electronically by telephone or over the Internet by following the instructions included with your proxy card or notice of Internet availability of proxy materials. If your shares are held in “street name,” you will receive instructions for the voting of your shares from your broker, bank or other nominee, which may permit telephone or Internet voting. Follow the instructions on the voting instruction form or notice of Internet availability of proxy materials that you receive from your broker, bank or other nominee to ensure that your shares are properly voted at the annual meeting.

 

By Order of the Board of Directors,
Jeffrey N. Carp
Secretary

April 6, 2017


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STATE STREET CORPORATION

One Lincoln Street, Boston, Massachusetts 02111

PROXY STATEMENT

 

SUMMARY INFORMATION

 

The summary below provides general information about State Street Corporation, referred to as State Street, and highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information you should consider when deciding how to vote your shares. For further and more detailed information on the matters referenced below, prior to casting your vote, please carefully review the entire proxy statement and our 2016 annual report on Form 10-K. Our 2016 annual report on Form 10-K accompanies this proxy statement and was previously filed with the Securities and Exchange Commission, or SEC.

About State Street

State Street Corporation is a financial holding company organized in 1969 under the laws of the Commonwealth of Massachusetts. State Street provides financial and managerial support to our legal and operating subsidiaries. Through our subsidiaries, including our principal banking subsidiary, State Street Bank and Trust Company, we provide a broad range of financial products and services to institutional investors worldwide. We refer to State Street Bank and Trust Company as State Street Bank or the Bank.

As of December 31, 2016, we had consolidated total assets of $242.70 billion, consolidated total deposits of $187.16 billion, consolidated total shareholders’ equity of $21.22 billion and 33,783 employees. We operate in more than 100 geographic markets worldwide, including the U.S., Canada, Europe, the Middle East and Asia.

We are a leader in providing financial services and products to meet the needs of institutional investors worldwide, with $28.77 trillion of assets under custody and administration and $2.47 trillion of assets under management as of December 31, 2016. Our clients include mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, insurance companies, foundations, endowments and investment managers.

In 2016 we continued to digitize our business, deepen and expand our client relationships and invest in and strengthen our foundation. In addition, our overall strategy worked to control expenses, effectively manage risk and optimize our capital position. We performed well against our strategic priorities, generating strong shareholder returns and supporting our long-term growth and profitability; however, 2016 financial performance was challenged by slow global economic growth, a continuing low interest rate environment and increased regulatory requirements and expectations. Although revenue and total fee revenue declined in 2016, both earnings per share and return on average common equity were higher in 2016 compared to 2015. Below are summary highlights of our 2016 consolidated corporate financial performance. Additional performance indicators are presented in “Compensation Discussion and Analysis—Executive Summary—2016 Corporate Performance Highlights.”

 

  ($ In millions,

  except per share data)

   2016      2015      % Change  

 

  Revenue

 

  

 

$

 

 

10,207

 

 

 

 

  

 

$

 

 

10,360

 

 

 

 

  

 

 

 

 

(1.5)%

 

 

 

 

 

  Total fee revenue

 

  

 

 

 

 

8,116

 

 

 

 

  

 

 

 

 

8,278

 

 

 

 

  

 

 

 

 

(2.0)%

 

 

 

 

 

  Diluted earnings per share (EPS)

 

  

 

 

 

 

4.97

 

 

 

 

  

 

 

 

 

4.47

 

 

 

 

  

 

 

 

 

11.2%

 

 

 

 

 

  Return on average common equity (ROE)

 

  

 

 

 

 

10.5%

 

 

 

 

  

 

 

 

 

9.8%

 

 

 

 

  

 

 

 

 

0.7%

 

 

 

 

 

2017 Annual Meeting of Shareholders
   
Date:    May 17, 2017
   
Time:    9:00 a.m., Eastern Time
   
Place:   

State Street’s corporate headquarters

One Lincoln Street, Boston, Massachusetts (36th floor)

   

Record date:

 

  

March 10, 2017

 

The proxy statement and annual report, and the means to vote electronically, are available at www.proxyvote.com. To view this material, you must have available the 16-digit control number located on the notice mailed on April 6, 2017, on the proxy card or, if shares are held in the name of a broker, bank or other nominee, on the voting instruction form.

For more information about the annual meeting, see “General Information About the Annual Meeting.”

 

 


 

i


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Voting Matters and Recommendations

 

  Item

   Board Recommendation

 

 

Election of Directors (see “Item 1—Election of Directors”)

  

 

 

FOR Each Nominee

 

Advisory Proposal on 2016 Executive Compensation    FOR
(see “Item 2—Approval of Advisory Proposal on Executive Compensation”)   

 

Advisory Proposal on the Frequency of Future Advisory Proposals on Executive    ANNUAL
Compensation (see “Item 3—Advisory Proposal on the Frequency of Future Advisory Proposals on Executive Compensation”)   

 

Approval of the 2017 Stock Incentive Plan    FOR
(see “Item 4—Approval of the 2017 Stock Incentive Plan”)   

 

Ratification of Ernst & Young LLP as Independent Registered Public    FOR
Accounting Firm for 2017 (see “Item 5—Ratification of the Selection of the Independent Registered Public Accounting Firm”)   

 

Board Composition Summary

Listed in the table below are the 10 nominees for election to State Street’s Board of Directors

 

Director Nominee  

 Examining 

 and Audit 

   Executive   

 Executive 

 Compensation 

 

 Nominating 

 and Corporate 

 Governance 

    Risk     Technology 

Kennett F. Burnes*L

Retired Chairman, President and Chief Executive Officer, Cabot Corporation

      LOGO   LOGO            LOGO

Patrick de Saint-Aignan*

Retired Managing Director and Advisory Director, Morgan Stanley

  LOGO                LOGO    

Lynn A. Dugle*

Chief Executive Officer and Director, Engility Holdings, Inc.

  LOGO                    LOGO

Amelia C. Fawcett*

Deputy Chairman, Kinnevik AB

      LOGO   LOGO        LOGO    

William C. Freda*

Retired Senior Partner and Vice Chairman, Deloitte, LLP

  LOGO   LOGO            LOGO    

Linda A. Hill*

Wallace Brett Donham Professor of Business Administration, Harvard Business School

          LOGO   LOGO        LOGO

Joseph L. Hooley

Chairman and Chief Executive Officer, State Street Corporation

      LOGO            LOGO    

Sean O’Sullivan*D

Retired Group Managing Director and Group Chief Operating Officer, HSBC Holdings, plc

                        

Richard P. Sergel*

Retired President and Chief Executive Officer, North American Electric Reliability Corporation

  LOGO   LOGO   LOGO            LOGO

Gregory L. Summe*

Managing Partner and Founder, Glen Capital Partners, LLC

      LOGO   LOGO   LOGO         

 

LOGO =Member             LOGO =Chair            *=Independent             L=Lead Director            D=First-Time Nominee

 



 

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Table of Contents

Director Qualifications and Skills

State Street believes that our Board of Directors should have a diversity of qualifications, skill sets and experience that, when taken as whole, best serve our company and our shareholders. Each of our director nominees has one or more of the following qualifications, skills or experience:

 

      Financial Industry

 

      CEO Experience

 

      Leadership

 

      Governance

 

 

    Risk Management

 

    International or Global Experience

 

    Legal and Regulatory Compliance

 

    Audit

 

    

    Technology

 

    Cyber Security

 

    Operations

 

    Accounting

 

Corporate Governance Summary

Our Board of Directors is committed to strong corporate governance practices and is intent on maintaining State Street’s reputation for quality, integrity and high ethical standards. The following is a summary of our Corporate Governance standards as related to the Board of Directors, Shareholder Rights and Engagement and Strategy and Risk:

 

LOGO

For more information about State Street’s corporate governance practices, see “Corporate Governance at State Street.”

 



 

iii

Board of Directors [●] of [●] director nominees are Independent Annual director elections Annual assessment of continous effectiveness and qualifications of each director nominee Active independent Lead Director elected annually by all independent directors Board and committees meet regularly in executive session without Management present At least 75 percent attendance by directors at Board and committee meetings Shareholder Rights and Engagement Directors are elected by a majority of votes cast In uncontested elections and by plurality vote in contested elections Active Investor outreach program No poison pill Proxy access by-law allows shareholders to Include in State Street’s proxy materials director nominees constituting up to 20% of the Board Strategy and Risk Board oversight Of our strategy, financial performance and strong ethics and risk culture Board oversight f CEO and management succession planning No restrictions in directors’ access to management Directors and executive officers subject to stock ownership guidelines Prohibition on short selling, options trading, hedging speculative transactions Incentive compensation subject to clawback, forfeiture and ex ante mechanisims


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Overview of 2016 Executive Compensation Program

Sound Compensation and Corporate Governance Practices

State Street develops and implements a compensation program for our Named Executive Officers, or NEOs, and other executive officers with the goals of:

 

 

attracting, retaining and motivating superior executives

 

 

rewarding those executives for meeting or exceeding annual and long-term financial and strategic objectives

 

 

driving long-term shareholder value and financial stability

 

 

achieving the preceding goals in a manner aligned with sound risk management and our corporate values

For each of our NEOs identified in the “Compensation Discussion and Analysis,” the Executive Compensation Committee, or Compensation Committee, determines the appropriate level of total compensation for the year. We engage several of our largest shareholders to receive their specific perspectives on our compensation programs and governance practices. In 2016, we held discussions with shareholders representing more than 30% of our outstanding common stock.

At State Street, compensation to our NEOs consists of two key elements:

 

 

Base Salary. Base salary is a fixed annual cash amount and is a relatively small portion of total compensation for our NEOs. Annual base salary rates for our 2016 NEOs remained unchanged from their levels in 2015.

 

 

Incentive Compensation. Incentive compensation is a variable amount, comprising both equity-based elements, paid as a long-term incentive, and cash-based elements, paid as an annual incentive. The Committee believes a significant amount of incentive compensation should take the form of both deferred awards and equity awards. Therefore, to emphasize long-term performance, a higher percentage of each NEO’s total incentive compensation is delivered as an equity-based long-term incentive. This emphasis on deferred awards is also consistent with regulatory guidance for major financial institutions.

Our NEO compensation practices support good governance and mitigate excessive risk-taking.

 

LOGO

 

LOGO

For more information about executive compensation at State Street, see “Executive Compensation.”

 



 

iv

What We Do Performance-based restricted stock units (RSUs) incorporate a ROE target that increased progressively in 2013, 2014 and 2015 Performance-based RSUs have a three-year performance period that promotes long-term performance Deferral of a significant amount of incentive compensation discourages short-term risk taking at the expense of long-term results Cash-based element of deferred compensation awards mitigates dilutive effects of deferred compensation Active engagement with our shareholders on compensation and governance issues Clawback and forfeiture policies permit the Compensation Committee to recoup incentive compensation payments Overlapping membership between the Compensation Committee and our Risk Committee “Double-trigger” change-of-control vesting in effect for all deferred incentive compensation awards granted on and after February 2014. These awards require a qualifying termination following a change of control before vesting Share ownership policy, including holding requirements, further aligns NEO incentive compensation design with the risks and performance results experienced by our shareholders. Each of our NEOs is in compliance with these guidelines An independent compensation consultant and independent legal counsel advise the Compensation Committee on executive compensation matters Non-compete and other restrictive covenants apply to deferred incentive awards Annual risk review by the Compensation Committee of the design and operation of our incentive compensation program What We Do Not Do No change-of-control excise tax gross-up No “single-trigger” change-of-control vesting on all awards granted on and after February 2014 No option repricing without share-holder approval No short-selling, options trading or hedging transactions in State Street securities No excessive perquisites No tax gross-ups on perquisites


Table of Contents

TABLE OF CONTENTS

 

SUMMARY INFORMATION

  i 

CORPORATE GOVERNANCE AT STATE STREET

  1

Governance Guidelines and Independence

  1

Standards of Conduct

  2

Composition of the Board and Director Selection Process

  2

Board Leadership Structure

  4

Meetings of the Board of Directors and Annual Shareholder Meeting

  5

Committees of the Board of Directors

  5

Non-Employee Director Compensation

  8

Related Persons Transactions

  9

ITEM 1 – ELECTION OF DIRECTORS

  11

EXECUTIVE COMPENSATION

  22

Compensation Discussion and Analysis

  22

Compensation Committee Report

  40

Alignment of Incentive Compensation and Risk

  41

Summary Compensation Table

  43

Grants of Plan-Based Awards in 2016

  45

Outstanding Equity Awards at Fiscal Year-End

  47

2016 Option/SAR Exercises and Stock Vested

  48

Pension Benefits at Fiscal Year-End

  49

2016 Nonqualified Deferred Compensation

  52

Potential Payments upon Termination or Change of Control

  54

ITEM 2 – APPROVAL OF ADVISORY PROPOSAL ON EXECUTIVE COMPENSATION

  61

ITEM  3 – ADVISORY PROPOSAL ON THE FREQUENCY OF FUTURE ADVISORY PROPOSALS ON EXECUTIVE COMPENSATION

  62

ITEM 4 – APPROVAL OF THE 2017 STOCK INCENTIVE PLAN

  63

EXAMINING AND AUDIT COMMITTEE MATTERS

  73

Examining and Audit Committee Pre-Approval Policies and Procedures

  73

Audit and Non-Audit Fees

  73

Report of the Examining and Audit Committee

  73

ITEM  5 – RATIFICATION OF THE SELECTION OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

  75

GENERAL INFORMATION ABOUT THE ANNUAL MEETING

  76

Questions and Answers about Voting

  76

Other Matters

  79

Proposals and Nominations by Shareholders

  79

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  80

SECTION 16(a) Beneficial Ownership Reporting Compliance

  81

APPENDIX A: 2017 STOCK INCENTIVE PLAN

  A-1

APPENDIX B: EXCERPT FROM STATE STREET GOVERNANCE GUIDELINES

  B-1

 

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2017 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

LOGO

CORPORATE GOVERNANCE AT STATE STREET

State Street is a financial holding company whose principal subsidiary is State Street Bank and Trust Company, or State Street Bank or the Bank. State Street and the Bank are each organized under the laws of the Commonwealth of Massachusetts. In accordance with Massachusetts law and State Street’s by-laws, our Board of Directors has responsibility for overseeing the conduct of our business. Our Board is committed to strong corporate governance practices and is intent on maintaining State Street’s reputation for quality, integrity and high ethical standards.

Governance Guidelines and Independence

State Street’s Board of Directors, in its role of overseeing the conduct of our business, is guided by our Corporate Governance Guidelines, or the Guidelines. Among other things, the Guidelines describe the role of the Board of Directors, its responsibilities and functions, the director qualification and selection process and the role of the Lead Director. The Guidelines also contain categorical standards for determining director independence under New York Stock Exchange, or NYSE, listing standards. In general, a director would not be independent under these standards if the director (and in certain circumstances, a member of the director’s immediate family) has, or in the past three years had, specified relationships or affiliations with State Street, its external or internal auditors or other companies that do business with State Street (including employment by State Street, receipt of a specified level of direct compensation from State Street—other than director fees—and compensation committee interlocks). The categorical standards also provide specified relationships that, by themselves, would not impair independence. The portion of the Guidelines addressing director independence is attached as Appendix B to this proxy statement. The full Guidelines are available under the “Corporate Governance” section in the “For Our Investors” section of our website at www.statestreet.com. In addition to the Guidelines, the charters for each principal committee of the Board and our Standard of Conduct for Employees, Standard of Conduct for Directors and Code of Ethics for Senior Financial Officers are also available in the same location on our website. Except as may be specifically incorporated by reference in this proxy statement, information on our website is not part of this proxy statement.

 

LOGO

Pursuant to the Guidelines, the Board undertook a review of director independence in early 2017. State Street, as a global financial institution and one of the largest providers of financial services to institutional investors, conducts business with many organizations throughout the world. Our directors, director nominees or their immediate family members may have relationships or affiliations with some of these organizations. As provided in the Guidelines, the purpose of the director independence review was to determine whether any relationship or transaction was inconsistent with a determination that the director or nominee was independent. As a result of this review, the Board, after review and recommendation by the Nominating and Corporate Governance Committee, determined that all of our non-management directors, including Messrs. Skates and Wilson whose terms as directors will end at the 2017 annual meeting, and our new director nominee meet the categorical standards for independence

 

STATE STREET CORPORATION    1

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be Held on May 17, 2017 The proxy statement and annual report, and the means to vote electronically, are available at www.proxyvote.com. To view this material, you must have available the 16-digit control number located on the notice mailed on April [], 2017, on the proxy card or, if shares are held in the name of a broker, bank or other nominee, on the voting instruction form.Independent Director Governance The independent directors meet in executive session at every regularly scheduled meeting of the Board and otherwise as needed The meetings of the independent directors promote additional opportunities, outside the presence of management, for the directors to engage together in discussion. The regularity of these meetings fosters continuity for these discussions and allows for a greater depth and scope to the matters discussed


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   Corporate Governance (continued)

 

   2017 NOTICE OF MEETING AND PROXY STATEMENT   

 

under the Guidelines, have no material relationship with State Street (other than the role of director) and satisfy the qualifications for independence under listing standards of the NYSE. In making these determinations, the Board considered that the below identified individuals, or their respective family members, have the following relationships or arrangements that are deemed to be immaterial under the categorical standards for independence included in the Guidelines:

 

 

commercial or charitable relationships with an entity for which the State Street director or family member serves as a non-employee director, and with respect to which the director was uninvolved in negotiating such relationship (Ms. Hill and Messrs. Burnes, de Saint-Aignan, Freda, Skates and Wilson)

 

 

commercial relationships with an entity for which the State Street director or family member serves as an employee, consultant or executive officer where the director does not receive any special benefits from the transaction and the annual payments to or from the entity are equal to or less than the greater of $1 million or 2% of the consolidated gross annual revenues of the other entity during the most recent completed fiscal year (Ms. Hill and Messrs. Freda and Wilson)

In 2016, none of these commercial or charitable relationships with affiliated entities involved amounts paid or received by State Street exceeding 1.7% of State Street’s annual gross revenue or the greater of $1 million or 0.6% of the affiliated entity’s annual gross revenue.

Standards of Conduct

We have a Standard of Conduct for Directors, which together with the Standard of Conduct for Employees, promotes ethical conduct and the avoidance of conflicts of interest in conducting our business. We also have a Code of Ethics for Senior Financial Officers (including the Chief Executive Officer), as required by the Sarbanes-Oxley Act and SEC rules. Each of these documents is available under the “Corporate Governance” section in the “For Our Investors” section of our website at www.statestreet.com. Only our Board may grant a waiver for directors, senior financial officers or executive officers from a provision of the Standard of Conduct for Directors, the Standard of Conduct for Employees or the Code of Ethics for Senior Financial Officers, and any waivers will be posted under the “Corporate Governance” section in the “For Our Investors” section of our website at www.statestreet.com.

Composition of the Board and Director Selection Process

In connection with nominating directors for election each year and evaluating the need for new director candidates as appropriate, including skill sets, diversity, specific business background and global or international experience, the Nominating and Corporate Governance Committee, with input from the entire Board and management, focuses on the Board’s capabilities and functioning as a whole.

 

LOGO

The director nominee biographies set forth in this proxy statement under the heading “Item 1—Election of Directors” indicate each nominee’s experience, qualifications, attributes and skills that led the Board to conclude he or she should serve as a direc-

 

2    STATE STREET CORPORATION

Director Nominee Characteristics and Qualifications The Board expects all nominees to possess the following attributes or characteristics: unquestionable business ethics, irrefutable reputation and superior moral and ethical standards informed and independent judgment with a balanced perspective, financial literacy, mature confidence, high performance standards and incisiveness ability and commitment to attend Board and committee meetings and to invest sufficient time and energy in monitoring management’s conduct of the business and compliance with State Street’s operating and administrative procedures a global vision of business with the ability and willingness to work closely with the other Board members Taken as a whole, the Board expects one or more of its members to have the following skill sets, specific business background and global or international experience: experience in the financial services industry experience as a senior officer of a well-respected public company experience as a senior business leader of an organization active in our key international growth markets experience in key disciplines of significant importance to State Street’s overall operations qualification as an audit committee financial expert (as defined by applicable SEC rules) qualification as a risk management expert (as defined by applicable Federal Reserve rules)


Table of Contents

   Corporate Governance (continued)

 

   2017 NOTICE OF MEETING AND PROXY STATEMENT   

 

tor of State Street. The Board believes that individually, each of the nominees has had substantial achievement in his or her personal and professional pursuits and has talents, experience and integrity that will contribute to the best interests of State Street and to long-term shareholder value, and the nominees as a group possess the skill sets, specific business background and global or international experience that the Board desires. On an ongoing basis, and at least annually, the Board evaluates the qualifications, skills and contributions of each Director, along with the current needs of the Board, to ensure that the Board is continuing to effectively and appropriately fulfill all of its duties and responsibilities.

In carrying out its responsibility to find the best qualified candidates for directors, the Nominating and Corporate Governance Committee will consider proposals for nominees from a number of sources, including recommendations from shareholders submitted upon written notice to the Chair of the Nominating and Corporate Governance Committee, c/o the Office of the Secretary of State Street Corporation, One Lincoln Street, Boston, Massachusetts 02111 (facsimile number (617) 664-8209). The Committee seeks to identify individuals qualified to become directors, consistent with the above criteria used by the Board for director candidates.

By following the procedures set forth under “General Information About the Annual Meeting—Proposals and Nominations by Shareholders,” shareholders also have the right under our by-laws to directly nominate director candidates and, in certain circumstances, to have their nominees included in State Street’s proxy statement.

The Nominating and Corporate Governance Committee’s process for identifying and evaluating candidates includes actively seeking to identify qualified individuals by reviewing lists of possible candidates and considering proposals from a number of sources, such as members of the Board, members of management, employees, shareholders and industry contacts. The Committee’s charter grants it the authority to retain a search firm to assist in conducting this search. Upon identifying a possible candidate, from whatever source, the Committee makes an initial evaluation as to whether the individual would be expected to qualify under the criteria used by the Board for director candidates. A possible candidate whom the Committee believes is an individual who could qualify under those criteria is then further evaluated through a process which may include obtaining and examining the individual’s resume, speaking with the person who has recommended the individual, speaking with others who may be familiar with the individual, interviews by members of the Board and the Nominating and Corporate Governance Committee with the individual, discussion at the Committee level of the individual’s possible contribution to State Street and, if appropriate, voting on the individual as a candidate. The Committee evaluates possible nominees for director without regard to whether an individual is recommended by a shareholder or otherwise.

Mr. Sean O’Sullivan is a nominee for election as director by shareholders for the first time. Mr. O’Sullivan was first identified by a third-party search firm that was retained to identify potential director candidates. At the request of the Nominating and Corporate Governance Committee, the search firm first discussed with the members of the Committee the priority characteristics of a new director candidate, in light of the preferred individual and Board qualities described above. The search firm developed preliminary criteria for a director candidate and reviewed them with the Committee. The search firm identified potential candidates that met the criteria and submitted a list of potential candidates for consideration. The Committee met to discuss and finalize the list of candidates and subsequently reviewed this process and the resulting list with the Board. After conducting a preliminary check to determine conflicts and eliminating from consideration those candidates whose commitments precluded them from considering an appointment to the Board, the search firm approached the candidates to determine their interest in serving on the Board. The search firm gave the Committee a list of candidates who were interested, and members of the Committee and the Chairman personally interviewed them. The Board is nominating Mr. O’Sullivan as he meets several of the criteria identified by the Board for new directors, including Mr. O’Sullivan’s valuable experience in the global financial services industry with a focus on organizational restructuring and effectiveness, information and technology, business transformation and operational risk management. Mr. O’Sullivan has the background and requisite experience to make significant contributions on many levels to State Street through his anticipated service as a director and was deemed independent by the Board under the Corporate Governance Guidelines.

Diversity

State Street does not have a formal policy with respect to diversity but, taken as a whole, strives to have a Board that reflects the diversity (in terms of a number of characteristics including gender, race, national origin, age and tenure on the Board) of State Street’s key stakeholders and of the various communities in which we operate. Presently, the Nominating and Corporate Governance Committee and the Board believe the composition of the Board, which currently reflects a range of personal and professional backgrounds, experiences and other characteristics, is reflective of this diversity. As noted above, the Nominating and Corporate Governance Committee includes diversity as a consideration in making its recommendations for nominees for director. The Committee, however, does not assign specific weight to the various factors it considers and no particular criterion is a prerequisite for nomination.

 

STATE STREET CORPORATION    3


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   2017 NOTICE OF MEETING AND PROXY STATEMENT   

 

Board Leadership Structure

State Street has adopted a leadership structure that includes an independent Lead Director of the Board. This position is currently held by Kennett F. Burnes. Mr. Burnes was elected Lead Director to serve a one-year term as the presiding director of the independent directors of the Board (all directors, except for Mr. Hooley) in May 2016. Mr. Burnes has served in this capacity for seven annual terms.

 

LOGO

Mr. Hooley, as State Street’s Chairman of the Board, presides at all meetings of the Board at which he is present. The Chairman works with the independent Lead Director in setting Board agendas and coordinating other Board activities. The role and responsibilities of the Lead Director and the effectiveness of this structure is evaluated on an ongoing basis and reviewed annually by the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee conducts a review of the current Lead Director by soliciting feedback from members of the Board, and based upon the review, recommends that the Board of Directors elect a member of the Board as its Lead Director to serve for a one-year term. The Board of Directors believes that Mr. Hooley’s role as Chairman and Mr. Burnes’ role as Lead Director is the most effective leadership structure for State Street and is in the best interests of the Board, State Street and its shareholders at this time. Among the factors considered by the Board in determining that this leadership structure continues to be the most appropriate are:

 

 

as our Chief Executive Officer, and with his extensive work history in different roles at State Street, Mr. Hooley is more familiar with our business and strategy than an independent, non-management Chairman would be and is thus better positioned to focus our Board’s agenda on the key issues facing State Street

 

 

a single Chairman and Chief Executive Officer provides strong, consistent and accountable leadership for State Street, without risking overlap or conflict of roles

 

 

oversight of State Street is the responsibility of our Board as a whole, and this responsibility can be properly discharged without an independent Chairman

 

 

the Chairman and our Lead Director work together to play a strong and active role in the oversight of State Street’s leadership

Communication with the Board of Directors

Shareholders and interested parties who wish to contact the Board of Directors or the Lead Director should address correspondence to the Lead Director in care of the Secretary. The Secretary will review and forward correspondence to the Lead Director or appropriate person or persons for response.

Lead Director of State Street Corporation

c/o Office of the Secretary

One Lincoln Street

Boston, MA 02111

 

4    STATE STREET CORPORATION

Role of the Independent Lead Director Elected annually by the independent directors to serve a one-year term Participates in, and attends, meetings of all of the Board’s committees providing valuable committee membership overlap to enable optimal agenda coordination, insight and consistency across all committees Presides at all meetings of the Board at which the Chairman is not present, including all executive sessions of independent directors Serves as a liaison between the Chairman and the independent directors Conducts an annual process for reviewing the Chief Executive Officer’s performance and reports the results of the process to the other independent directors Communicates with the Chairman to provide feedback and implement the decisions and recommendations of the independent directors Represents the Board in discussions with stakeholders and communicates with regulators Approves, in consultation with the Chairman, the agendas for Board meetings and information sent to the Board and the matters voted on by full Board. Authorized to call additional meetings of the independent director


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   2017 NOTICE OF MEETING AND PROXY STATEMENT   

 

In addition, State Street has established a procedure for communicating directly with the Lead Director, by utilizing a third-party independent provider, regarding concerns about State Street or its conduct, including complaints about accounting, internal accounting controls or auditing matters. An interested party who wishes to contact the Lead Director may use any of the following methods, which are also described on State Street’s website at www.statestreet.com:

 

LOGO    LOGO    LOGO
From within the United States and Canada:    The Network/NAVEX    www.tnwinc.com/webreport
1-888-736-9833 (toll-free)    ATTN: State Street   
   333 Research Court   
   Norcross, GA 30092 USA   

For country specific phone numbers please visit www.statestreet.com.

The Lead Director may forward to the Examining and Audit Committee, or to another appropriate group or department, for appropriate review, any concerns the Lead Director receives. The Lead Director periodically reports to the independent directors as a group regarding concerns received.

Meetings of the Board of Directors and Annual Shareholder Meeting

During 2016, the Board of Directors held nine meetings, and each of the incumbent directors attended at least 75 percent of all meetings of the Board and committees of the Board for such period as the director served. Although State Street does not have a formal policy regarding attendance of directors at the annual meeting, all directors are encouraged to attend. Each of the 11 directors on the Board at the time of our 2016 annual meeting attended the meeting.

Committees of the Board of Directors

The Board of Directors has the following principal committees to assist it in carrying out its responsibilities, and each operates under a written charter, a copy of which is available under the “Corporate Governance” section in the “For Our Investors” section of our website at www.statestreet.com. The charter for each committee, which establishes its roles and responsibilities and governs its procedures, is annually reviewed and approved by the Board.

Examining and Audit Committee

 

 

LOGO

  

Primary Responsibilities:

 

•    Responsible for the appointment (including qualifications, performance and independence), compensation, retention, evaluation and oversight of the work of State Street’s independent registered public accounting firm, including sole authority for the establishment of pre-approval policies and procedures for all audit engagements and any non-audit engagements

 

•    Discusses with the independent auditor critical accounting policies and practices, alternative treatments of financial information, the effect of regulatory and accounting initiatives and other relevant matters

 

•    Oversees the operation of our system of internal controls covering the integrity of our consolidated financial statements and reports; compliance with laws, regulations, corporate policies; and the performance of corporate audit

 

 

•    Reviews the effectiveness of State Street’s compliance program and conducts an annual performance evaluation of the General Auditor and of the Chief Compliance Officer

Independence: All members meet the independence requirements of the listing standards of the NYSE and the rules and regulations of the SEC.

 

STATE STREET CORPORATION    5


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   2017 NOTICE OF MEETING AND PROXY STATEMENT   

 

Executive Committee

 

 

LOGO

  

Primary Responsibilities:

 

•   Authorized to exercise all the powers of the Board of Directors, except as otherwise limited by the laws of the Commonwealth of Massachusetts or the Committee’s charter

 

•   Reviews, approves and acts on matters on behalf of the Board of Directors at times when it is not practical to convene a meeting of the Board to address such matters

 

•   Depending on meeting activities, if any, periodically reports to the Board

Executive Compensation Committee

 

 

LOGO

  

Primary Responsibilities:

 

   Oversees the operation of all compensation plans, policies and programs in which executive officers participate and certain other incentive, retirement, welfare and equity plans in which all other employees participate

  

 

   Oversees the alignment of our incentive compensation arrangements with the safety and soundness of State Street, including the integration of risk management objectives, related policies, arrangements and control processes, consistent with applicable regulatory rules and guidance

  

 

•   Acting together with the other independent directors, annually reviews and approves corporate goals and objectives relevant to the Chief Executive Officer’s compensation; evaluates the Chief Executive Officer’s performance; and reviews, determines and approves, in consultation with the other independent directors, the Chief Executive Officer’s compensation level

  

 

•   Reviews, evaluates and approves the total compensation of all executive officers

  

 

•   Approves the terms and conditions of employment and any changes thereto, including any restrictive provisions, severance arrangements and special arrangements or benefits, of any executive officer

  

 

•   Adopts equity grant guidelines in connection with its overall responsibility for all equity plans and monitors stock ownership of executive officers

  

 

•   Appoints and oversees compensation consultants and other advisors retained by the Committee

Independence: All members meet the independence requirements of the listing standards of the NYSE and the rules and regulations of the SEC.

The Board of Directors has formed a subcommittee of the Executive Compensation Committee with the purpose and authority to perform all functions of the Executive Compensation Committee related to the qualification of performance-based compensation for applicable exemptions under Internal Revenue Code Section 162(m), including establishing performance goals and certifying the attainment of those goals. Each subcommittee member qualifies as an outside director for purposes of Section 162(m) and as a non-employee director for purposes of SEC Rule 16b-3. All references to the Executive Compensation Committee in this proxy statement refer to the subcommittee as appropriate.

 

6    STATE STREET CORPORATION


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   Corporate Governance (continued)

 

   2017 NOTICE OF MEETING AND PROXY STATEMENT   

 

Nominating and Corporate Governance Committee

 

 

LOGO

  

Primary Responsibilities:

 

   Assists the Board in overseeing our governance processes including succession planning, identifying and recommending director nominees, recommending the membership of each committee and leading the Board in its annual review of the Board’s performance

 

   Reviews and approves State Street’s related person transactions, reviews the amount and form of director compensation and reviews reports on regulatory, political and lobbying activities of State Street

 

Independence: All members meet the independence requirements of the listing standards of the NYSE and the rules and regulations of the SEC.

Risk Committee

 

 

LOGO

  

Primary Responsibilities:

 

   Oversees the operation of our global risk management framework, including the risk management policies for our operations

 

   Reviews the management of all risk applicable to our operations, including credit, market, interest rate, liquidity, operational and business risks, as well as compliance and reputational risk

 

   Oversees the strategic capital governance principles and controls, monitors capital adequacy in relation to risk and discharges the duties and obligations of the Board under applicable Basel, Comprehensive Capital Analysis and Review, Comprehensive Liquidity Assessment and Review and resolution and recovery planning requirements

 

   Conducts an annual performance evaluation of the Chief Risk Officer

  
  
  
  
  

Technology Committee

 

 

LOGO

  

Primary Responsibilities:

 

•    Assists the Board in the oversight of State Street’s technology, including the use of technology in global operations and business activities and our technology strategies

 

•    Advises the Board on technology related risks, including cyber and information security

 

STATE STREET CORPORATION    7


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   2017 NOTICE OF MEETING AND PROXY STATEMENT   

 

Non-Employee Director Compensation

General

The Nominating and Corporate Governance Committee is responsible for reviewing annually the form and amount of director compensation and for making a related recommendation to the Board. The Committee’s review focuses on compensation for our non-employee directors. Mr. Hooley is the only director who is also one of our employees, and the determination of his compensation is described in this proxy statement under the heading “Executive Compensation.” In conducting its review, the Committee has access to compensation consultants and other resources it deems appropriate, including peer group data. The Committee uses the same peer group the Compensation Committee uses for purposes of executive compensation generally and, like the Compensation Committee, used the services of Meridian Compensation Partners as a compensation consultant for 2016. For information on State Street’s peer group and compensation consultant, see “Executive Compensation—Compensation Discussion and Analysis—Other Elements of Our Process.”

Each year, our compensation consultant assists in preparing a review of director compensation within the peer group. After reviewing this material in 2016, the Committee made its recommendation to the Board, which, following the May 2016 annual meeting of shareholders, approved director compensation for all non-employee directors effective through the 2017 annual meeting of shareholders.

Compensation

For the period between each annual meeting of shareholders, non-employee directors receive the following compensation:

 

  Director Compensation Component    Value ($)    Vehicle(1)     

 

  Annual Retainer(2)

    

 

 

 

 

 

$  75,000

 

 

  

 

 

Cash or shares of State Street common stock

 

 

 

  Annual Equity Grant Award(2)

    

 

 

 

150,000

 

  

 

Shares of State Street common stock

 

 

 

  Board and Committee Meeting Fee(3)

    

 

 

 

1,500

 

  

 

Cash

 

 

 

 

  Additional Lead Director Retainer

    

 

 

 

150,000

 

  

 

 

Cash or shares of State Street common stock

 

 

 

  Examining and Audit Committee and Risk Committee Chair Retainer

    

 

 

 

 

25,000

 

 

 

  

 

Cash or shares of State Street common stock

 

 

 

  Executive Compensation Committee Chair Retainer

    

 

 

 

20,000

 

  

 

Cash or shares of State Street common stock

 

 

 

 

  Nominating and Corporate Governance Committee Chair Retainer

    

 

 

 

15,000

 

  

 

Cash or shares of State Street common stock

 

 

 

  Examining and Audit Committee and Risk Committee Member   Retainer

    

 

 

 

15,000

 

  

 

Cash or shares of State Street common stock

 

   
(1)

All shares of State Street common stock are awarded based upon the closing price of the stock on the NYSE on the date of the annual meeting that begins the period, unless otherwise noted.

(2)

Pro-rated annual retainer and annual equity grant for any director joining the Board after the annual meeting that begins the period, with shares of State Street common stock awarded based on the closing price of the stock on the NYSE on the date of election.

(3)

Directors receive meeting fees of $1,500 for each Board and committee meeting attended, together with reimbursement of expenses incurred as a result of attending such meetings, payable in cash. The Lead Director does not receive any committee meeting fees, but does receive Board meeting fees and reimbursement of expenses.

Pursuant to State Street’s Deferred Compensation Plan for Directors, directors may elect to defer the receipt of 0% or 100% of their (1) retainers, (2) meeting fees or (3) annual award of shares of common stock. Directors also may elect to receive all of their retainers in cash or shares of common stock. Directors who elect to defer the cash payment of their retainers or meeting fees may also make notional investment elections with respect to such deferrals, with a choice of four notional investment fund returns. Deferrals of shares of common stock are adjusted to reflect the hypothetical reinvestment in additional shares of common stock of any dividends or distributions on State Street common stock. Deferred amounts will be paid (a) as elected by the director, on either the date of the director’s termination of service on the Board or on the earlier of such termination and a future date specified, and (b) in the form elected by the director as either a lump sum or in installments over a two- to five-year period.

 

8    STATE STREET CORPORATION


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   Corporate Governance (continued)

 

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Director Stock Ownership Guidelines

We have stock ownership guidelines that apply to all directors. The target level of stock ownership is equal to 5 times the annual equity grant of $150,000 for a total of $750,000. Achievement of this guideline is phased-in over a period of seven years, with the first year commencing on the date of election as director, for any director elected to the Board prior to May 2011. For directors elected to the board after May 2011, the phase-in period is five years. A holding requirement applies until the full (not pro-rated) target ownership level is achieved. For purposes of the director stock ownership guidelines, the value of shares owned is calculated by reference to the closing price of our common stock on the NYSE on the date that we use for the beneficial ownership table in our annual meeting proxy statement. Directors are credited with the value and number of all shares they beneficially own for purposes of the beneficial ownership table which includes all shares awarded as director compensation, whether immediate or deferred. Directors are expected to attain the ownership level ratably over the phase in period.

As of March 1, 2017, the stock ownership level for each of our directors either exceeded the expected level of ownership under these guidelines or, for those directors whose holdings do not currently meet the guidelines, is consistent with a pro-rated accumulation of shares which would, if continued, exceed the guidelines by the end of the applicable phase-in period. As of March 1, 2017, all directors, except for Ms. Dugle and Mr. Freda, exceed the full (not ratable) expected level of ownership, and therefore, the holding requirement applies only to them during the phase-in period.

2016 Director Compensation

 

  Name    Fees Earned
or Paid in
Cash
($)
   Stock Awards(1)
($)
   All Other
Compensation(2)
($)
   Total
($)
     (a)    (b)    (c)    (g)    (h)

 

  Kennett F. Burnes

 

    

 

 

 

 

$238,500

 

 

 

    

 

 

 

 

$150,000

 

 

 

    

 

 

 

 

$35,783

 

 

 

 

    

 

$

 

 

424,283

 

 

 

 

  Patrick de Saint-Aignan

 

    

 

 

 

 

178,500

 

 

 

    

 

 

 

 

150,000

 

 

 

    

 

 

 

 

  35,783

 

 

 

    

 

 

 

 

364,283

 

 

 

 

  Lynn A. Dugle

 

    

 

 

 

 

140,250

 

 

 

    

 

 

 

 

150,000

 

 

 

    

 

 

 

 

—  

 

 

 

    

 

 

 

 

290,250

 

 

 

 

  Amelia C. Fawcett

 

    

 

 

 

 

152,500

 

 

 

    

 

 

 

 

150,000

 

 

 

    

 

 

 

 

—  

 

 

 

    

 

 

 

 

302,500

 

 

 

 

  William C. Freda

 

    

 

 

 

 

170,500

 

 

 

    

 

 

 

 

150,000

 

 

 

    

 

 

 

 

  35,506

 

 

 

    

 

 

 

 

356,006

 

 

 

 

  Linda A. Hill

 

    

 

 

 

 

114,000

 

 

 

    

 

 

 

 

150,000

 

 

 

    

 

 

 

 

—  

 

 

 

    

 

 

 

 

264,000

 

 

 

 

  Richard P. Sergel

 

    

 

 

 

 

168,500

 

 

 

    

 

 

 

 

150,000

 

 

 

    

 

 

 

 

—  

 

 

 

    

 

 

 

 

318,500

 

 

 

 

  Ronald L. Skates

 

    

 

 

 

 

174,000

 

 

 

    

 

 

 

 

150,000

 

 

 

    

 

 

 

 

  35,783

 

 

 

    

 

 

 

 

359,783

 

 

 

 

  Gregory L. Summe

 

    

 

 

 

 

123,000

 

 

 

    

 

 

 

 

150,000

 

 

 

    

 

 

 

 

  35,360

 

 

 

    

 

 

 

 

308,360

 

 

 

 

  Thomas J. Wilson(3)

 

    

 

 

 

 

39,000

 

 

 

    

 

 

 

 

240,000

 

 

 

    

 

 

 

 

  35,360

 

 

 

    

 

 

 

 

314,360

 

 

 

 

(1)

For the May 2016-April 2017 Board year, each director received 2,440 shares of common stock valued at $150,000 on the date of grant for the annual equity award; each director electing to receive the annual retainer in common stock also received 1,220 shares of common stock valued at $75,000 on the date of grant. One director elected to receive his additional committee member retainer in common stock in lieu of cash. All of these shares were valued based on the per-share closing price of our common stock on the NYSE on May 18, 2016 of $61.50. Stock awards to non-employee directors vest immediately, and there were no unvested non-employee director stock awards as of December 31, 2016.

(2)

Perquisites that Messrs. Burnes, de Saint-Aignan, Freda, Skates, Summe and Wilson received in 2016 include: director life insurance coverage and business travel accident insurance paid for by State Street ($360 for Messrs. Summe and Wilson, $506 for Mr. Freda and $783 for Messrs. Burnes, de Saint-Aignan and Skates); and matching charitable contributions that were made in the name of directors under State Street’s matching gift program available to all directors ($35,000 for Messrs. Burnes, de Saint-Aignan, Freda, Skates, Summe and Wilson). The amount of perquisites and other personal benefits for Dame Amelia, Mses. Dugle and Hill and Mr. Sergel has not been itemized because the total did not exceed $10,000.

(3)

The annual retainer and committee member retainer were delivered in shares of State Street common stock.

Related Person Transactions

The Board has adopted a written policy and procedures for the review of any transaction, arrangement or relationship in which State Street is a participant, the amount involved exceeds $120,000 and one of our executive officers, directors, director nominees or 5% shareholders (or their immediate family members), who we refer to as “related persons,” has a direct or indirect material interest. A related person proposing to enter into such a transaction, arrangement or relationship must report the proposed related-person transaction to State Street’s Chief Legal Officer. The policy calls for the proposed related-person transaction to be reviewed and, if deemed appropriate, approved by the Nominating and Corporate Governance Committee. A related-person transaction reviewed under the policy will be considered approved or ratified if it is authorized by the Nominating and Corporate Governance Committee (or the Committee Chair) after full disclosure of the related person’s interest in the transaction. Whenever practicable, the reporting, review and

 

STATE STREET CORPORATION    9


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approval will occur prior to the transaction. If advance review is not practicable or was otherwise not obtained, the Committee will review and, if deemed appropriate, ratify the related-person transaction. The policy also permits the Chair of the Committee to review and, if deemed appropriate, approve proposed related-person transactions that arise between Committee meetings, in which case they will be reported to the full Committee at its next meeting. Any related-person transactions that are ongoing in nature will be reviewed annually.

 

LOGO

The Nominating and Corporate Governance Committee may approve or ratify the related-person transaction only if the Committee determines that, under all of the circumstances, the transaction is in, or is not inconsistent with, State Street’s best interests. The Committee may, in its sole discretion, impose such conditions as it deems appropriate on State Street or the related person in connection with approval of the related-person transaction.

In addition to the transactions that are excluded by the instructions to the SEC’s related-person transaction disclosure rule, the Board has determined that the following transactions do not create a material direct or indirect interest on behalf of related persons and, therefore, are not related-person transactions for purposes of this policy:

 

 

interests arising solely from the related person’s position as an executive officer, employee or consultant of another entity (whether or not the person is also a director of such entity) that is a party to the transaction, where (1) the related person and his or her immediate family members do not receive any special benefits as a result of the transaction and (2) the annual amount involved in the transaction equals less than the greater of $1 million or 2% of the consolidated gross revenues of the other entity that is a party to the transaction during that entity’s last completed fiscal year or

 

 

a transaction that involves discretionary charitable contributions from State Street to a tax-exempt organization where a related person is a director, trustee, employee or executive officer, provided the related person and his or her immediate family members do not receive any special benefits as a result of the transaction, and further provided that, where a related person is an executive officer of the tax-exempt organization, the amount of the discretionary charitable contributions in any completed year in the last three fiscal years is not more than the greater of $1 million, or 2% of that organization’s consolidated gross revenues in the last completed fiscal year of that organization (in applying this test, State Street’s automatic matching of director or employee charitable contributions to a charitable organization will not be included in the amount of State Street’s discretionary contributions)

On March 27, 2017, State Street entered into a series of definitive agreements with DST Systems, Inc., or DST, and its affiliates providing for, among other things, the acquisition by affiliates of DST of State Street’s interests in the parties’ joint ventures, Boston Financial Data Services, Inc., or BFDS, and International Financial Data Services Limited, or IFDS Ltd. BFDS provides shareholder recordkeeping, intermediary and investor services and regulatory compliance solutions to financial services clients in the United States, and IFDS Ltd. is an investor and policy holder administrative services and technology provider to the collective funds, insurance and retirement industries. State Street exchanged its interest in BFDS for approximately 2.0 million shares of State Street common stock, valued at approximately $158 million, which acquisition of common stock was treated as part of State Street’s $1.4 billion common stock purchase program previously announced in July 2016. State Street sold its interest in IFDS Ltd. and related assets for cash consideration of approximately $175 million. Stephen C. Hooley, President and Chief Executive Officer of DST, is the brother of Joseph L. Hooley, Chairman and Chief Executive Officer of State Street. These transactions were approved by State Street’s Nominating and Corporate Governance Committee in accordance with our Related Person Transaction Policy.

Based on information provided by the directors, nominees and executive officers, and obtained by the legal department, no other related-person transactions were required to be reported in this proxy statement under applicable SEC regulations. In addition, neither State Street nor the Bank had extended a personal loan or extension of credit to any of its directors, nominees or executive officers.

 

10    STATE STREET CORPORATION

As appropriate for the circumstances, the Committee (or the Committee Chair) will review and consider: the related person’s interest in the related-person transaction the approximate dollar value of the amount involved in the related-person transaction the approximate dollar value of the amount of the related person’s interest in the transaction without regard to the amount of any profit or loss whether the transaction was undertaken in the ordinary course of State Street’s business whether the transaction with the related person is on terms no less favorable to State Street than terms that could be reached with an unrelated third-party the purpose, and the potential benefits to State Street, of the transaction any other information regarding the related-person transaction or the related person in the context of the proposed transaction that would be material to investors in light of the circumstances of the particular transaction


Table of Contents

2017 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

ITEM 1 – ELECTION OF DIRECTORS

 

 

 

 

 

LOGO

Each director elected at the 2017 annual meeting will serve until the next annual meeting of shareholders, except as otherwise provided in State Street’s by-laws. Of the 10 director nominees, 9 are non-management nominees and one serves as the Chief Executive Officer of State Street. All of the non-management nominees are independent, as determined by the Board in its opinion, under the applicable definition in the NYSE listing standards and the State Street Corporate Governance Guidelines.

Pursuant to State Street’s by-laws, on March 24, 2017, the Board fixed the number of directors at 10, effective as of the date of the 2017 annual meeting. Unless contrary instructions are given, shares represented by proxies solicited by the Board of Directors will be voted for the election of the 10 nominees listed below. We have no reason to believe that any nominee will be unavailable for election at the annual meeting. In the event that one or more nominees is unexpectedly not available to serve, proxies may be voted for another person nominated as a substitute by the Board or the Board may reduce the number of directors to be elected at the annual meeting. Information relating to each nominee for election as director is described below, including:

• age and, for each incumbent, his or her period of service as a director of State Street

• business experience during at least the past five years (including directorships at other public companies)

• community activities

• other experience, qualifications, attributes or skills that led the Board to conclude the director should serve as a director of State Street

The Board of Directors recommends that shareholders approve each director nominee for election based upon the qualifications and attributes discussed below. See “Corporate Governance at State Street—Composition of the Board and Director Selection Process” for a further discussion of the Board’s process and reasons for nominating these candidates.

 

STATE STREET CORPORATION    11

The Board of Directors unanimously recommends that you vote FOR each of the nominees for director (Item 1 on your proxy card)


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   2017 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

 

LOGO

 

Career Highlights

 

 

Retired Chairman, President and Chief Executive Officer, Cabot Corporation, an NYSE-listed manufacturer of specialty chemicals and performance materials (2001 to 2008); President (1995 to 2008)

 

 

Director, Watts Water Technologies, Inc., an NYSE-listed supplier of products for use in the water quality, water safety, water flow control and water conservation markets (2009 to 2015)

Qualifications and Attributes

Mr. Burnes’ significant experience in leading a global organization, with facilities and operations in approximately 20 countries, brings to State Street’s Board a focus on developing new products and new businesses in diverse, international environments. Prior to joining Cabot Corporation in 1987, he was a partner at the Boston-based law firm of Choate, Hall & Stewart where he practiced corporate and business law for nearly 20 years. Mr. Burnes obtained experience in evaluating complex legal issues that arise in the types of material transactions boards of directors are called on to consider, including mergers and acquisitions and financing transactions. Mr. Burnes serves as a trustee for the Dana Farber Cancer Institute and Epiphany School, a director for More Than Words and chairman of the board of trustees at the New England Conservatory and the Schepens Eye Research Institute. Mr. Burnes holds both an LL.B. and B.A. degree from Harvard University.

 

12    STATE STREET CORPORATION

KENNETT F. BURNES Age 74, Director Since 2003 BOARD ROLES AND COMMITTEES Lead Director Executive Committee Executive Compensation Committee Technology Committee (Chair) DIRECTOR QUALIFICATION HIGHLIGHTS Leadership Legal and Regulatory Compliance International Business Operations Corporate Finance


Table of Contents

   Item 1 (continued)

 

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LOGO

 

Career Highlights

 

 

Retired Managing Director and Advisory Director, Morgan Stanley, an NYSE-listed global financial services company (1974 to 2007); firm-wide head of the company’s risk management function (1995 to 2002)

 

 

Director, Allied World Assurance Company Holdings AG, an NYSE-listed specialty insurance and reinsurance company (2008 to present); member of the Enterprise Risk Committee (Chairman), Compensation Committee, Audit Committee and Investment Committee

 

 

Director, Edaris Health, Inc., a private healthcare information technology company (2007 to 2016 as Forerun, prior to name change to Edaris Health, Inc.; 2016 to present as Edaris Health, Inc.); member of the Compensation Committee

 

 

Member of Supervisory Board, BH PHARMA, a private generic drug development company (2015 to present)

 

 

Director, Bank of China Limited, (2006 to 2008); member of the Audit Committee (Chairman), the Risk Policy Committee and the Personnel and Remuneration Committee

 

 

Director, Non-Executive Chairman, European Kyoto Fund (2008 to 2012)

Qualifications and Attributes

Mr. de Saint-Aignan’s extensive experience in risk management, corporate finance, capital markets and firm management brings to the Board a sophisticated understanding of risk, particularly with respect to the implementation of risk and monitoring programs within a global financial services organization. Mr. de Saint-Aignan’s service on the board of directors and committees of several other companies gives him additional perspective on global management and governance. A dual citizen of the United States and France, he was honored with Risk Magazine’s Lifetime Achievement Award in 2004. Mr. de Saint-Aignan holds his B.B.A. degree from the Ecole des Hautes Etudes Commerciales and an M.B.A. from Harvard University.

 

STATE STREET CORPORATION    13

PATRICK DE SAINT-AIGNAN Age 68, Director Since 2009 BOARD ROLES AND COMMITTEES Examining and Audit Committee Risk Committee DIRECTOR QUALIFICATION HIGHLIGHTS Corporate Finance Risk Management Global Financial Services International Management


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   Item 1 (continued)

 

   2017 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

LOGO

 

Career Highlights

 

 

Chief Executive Officer, Engility Holdings, Inc., an NYSE-listed engineering and technology consulting company (2016 to present); Director (2014 to 2015 as TASC, prior to acquisition by Engility Holdings, Inc.; 2015 to present as Engility Holdings, Inc.)

 

 

Corporate Vice President and President, Intelligence, Information and Services, Raytheon Company, an NYSE-listed defense contractor and electronics manufacturer (2004 to 2015); Vice President, Engineering, Technology and Quality, Network Centric Systems (2004 to 2009); Vice President, Support Engineering and Six Sigma (1997 to 1999)

 

 

Vice President, Product, Systems Software Division, ADC Telecommunications, Inc., a former Nasdaq-listed communications company (acquired 2010 by Tyco Electronics) (2002 to 2004); General Manager, Cable Systems Division (1999 to 2002)

 

 

General Manager, Telecom Systems Division, Texas Instruments, Inc., a Nasdaq-listed electronics manufacturer (1982 to 1997)

Qualifications and Attributes

As the Chief Executive Officer and member of the Board of Directors of Engility Holdings, a leading provider of integrated solutions and services for the U.S. government, Department of Defense, federal civilian agencies and international customers, Ms. Dugle brings to the Board valuable experience in leading the development of large businesses with a focus on information, technology and security matters. Her understanding of information and technology matters provides the Board with guidance as State Street continues to transform and digitize products and services. Prior to her role at Engility, Ms. Dugle was the president of Intelligence, Information and Services at Raytheon where she was responsible for the company’s advanced cyber solutions, cyber security services and information-based solutions. She also served as vice president of engineering, technology and quality for the former Network Centric Systems business at Raytheon and was responsible for the strategic direction, leadership and operations of the engineering, technology and quality functions. Prior to Raytheon, Ms. Dugle held executive positions at ADC Telecommunication with responsibility for leading teams across Europe, Middle East and Africa and the Asia-Pacific region. She holds B.S. and B.B.A. degrees from Purdue University and an M.B.A. in international business from the University of Texas at Dallas.

 

14    STATE STREET CORPORATION

LYNN A. DUGLE Age 57, Director Since 2015 BOARD ROLES AND COMMITTEES Examining and Audit Committee Technology Committee DIRECTOR QUALIFICATION HIGHLIGHTS Cyber Security Global Operations Technology International Business


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   Item 1 (continued)

 

   2017 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

LOGO

 

Career Highlights

 

 

Deputy Chairman, Kinnevik AB, a long-term oriented investment company (2013 to present); Non-Executive Director (2011 to present); member of Remuneration Committee (Chair) and Governance, Risk and Compliance Committee (Chair)

 

 

Chairman, Hedge Fund Standards Board (U.K.), a global standard-setting body for the hedge fund industry (2011 to present)

 

 

Non-Executive Director, Millicom International Cellular S.A., an international telecommunications and media company (2014 to present); member of the Remuneration Committee (Chair) and Compliance and Business Practices Committee

 

 

Non-Executive Director, HM Treasury, the British Government’s Economic & Finance Ministry (2012 to present)

 

 

Former Non-Executive Chairman, Guardian Media Group plc, a privately held diversified multimedia business in London (2009 to 2013); Non-Executive Director (2007 to 2013)

 

 

Former Vice Chairman and Chief Operating Officer of European Operations, Morgan Stanley, an NYSE-listed global financial services company (2002 to 2006) and Morgan Stanley International Limited, London (2006 to 2007); Vice President (1990 to 1992); Executive Director (1992 to 1996); Managing Director and Chief Administrative Officer for European Operations (1996 to 2002); Senior Adviser (2006 to 2007)

Qualifications and Attributes

Dame Amelia Fawcett, a dual American and British citizen, has many years of extensive and diverse financial services experience. At Morgan Stanley, she served in many roles including Vice Chairman and Chief Operating officer of Morgan Stanley International and had responsibility for development and implementation of the company’s business strategy (including business integration), as well as oversight of the company’s operational risk functions, infrastructure support and corporate affairs. Prior to joining Morgan Stanley, she was an attorney at the New York-based law firm of Sullivan & Cromwell, practicing primarily in the areas of corporate and banking law in both New York and Paris. Her service on both the Court of Directors of the Bank of England (the Board of the British Central Bank) and the British Treasury (the latter a position she still holds) provided her with valuable experience with the complex regulatory and compliance frameworks of the financial industry. Dame Amelia was awarded a CBE (Commander of the Order of the British Empire) and a DBE (Dame Commander of the Order of the British Empire) by the Queen, in both instances for services to the finance industry. In addition, in 2004, she received His Royal Highness The Prince of Wales’s Ambassador Award recognizing responsible business activities that have a positive impact on society and the environment. Dame Amelia’s public policy experience and experience in the European banking markets provide a valuable international financial markets perspective to State Street. She formerly has served, or currently serves, in the capacity as chairman of the American Friends of the National Portrait Gallery, deputy chairman of the National Portrait Gallery, chairman of the Prince of Wales’ Charitable Foundation (current), deputy chairman and governor of the London Business School (current), a commissioner of the U.S.-U.K. Fulbright Commission (current) and a trustee of Project Hope (current). Dame Amelia received a B.A. degree from Wellesley College, a J.D. degree from the University of Virginia and an honorary degree from the American University in London (Richmond).

 

STATE STREET CORPORATION    15

AMELIA C. FAWCETT Age 60, Director Since 2006 BOARD ROLES AND COMMITTEES Executive Committee Executive Compensation Committee Risk Committee (Chair) DIRECTOR QUALIFICATION HIGHLIGHTS Regulatory Compliance Legal Global Financial Services Risk Management


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   Item 1 (continued)

 

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LOGO

 

Career Highlights

 

 

Retired Senior Partner and Vice Chairman, Deloitte, LLP, a global professional services firm (2011 to 2014); Managing Partner of Client Initiatives (2007 to 2011); member of US Executive Committee

 

 

Director, Deloitte Touche Tohmatsu Limited (2007 to 2013); member of Risk Committee (Chairman) (2011 to 2013) and Audit Committee (Chairman) (2008 to 2011)

 

 

Director, Guardian Life Insurance Company, a mutual life insurance company (2014 to present)

 

 

Director, Hamilton Insurance Group, a global insurance and reinsurance company (2014 to present)

Qualifications and Attributes

As senior partner and vice chairman of Deloitte, LLP, Mr. Freda served Deloitte’s most significant clients and maintained key relationships, acting as a strategic liaison to the marketplace as well as to professional and community organizations. Mr. Freda joined Deloitte in 1974 and built a distinguished record of service during his 40-year career, having served on a wide range of multinational engagements for many of Deloitte’s largest and most strategic clients. Mr. Freda brings to the Board key insight and perspective on risk management, international expansion and client relationships gained through his extensive experience interacting with audit committees, boards of directors and senior management. He serves as a trustee of Bentley University. Previously, Mr. Freda has served as the chairman of Catholic Community Services, the United Way of Essex and West Hudson and the AICPA Insurance Companies Committee and was a U.S. Representative to the International Accounting Standards Committee’s Insurance Steering Committee. Mr. Freda received his B.S. in accounting from Bentley University.

 

16    STATE STREET CORPORATION

WILLIAM C. FREDA Age 64, Director Since 2014 BOARD ROLES AND COMMITTEES Examining and Audit Committee (Chair) Executive Committee Risk Committee DIRECTOR QUALIFICATION HIGHLIGHTS Audit Risk Management Global Financial Services Accounting


Table of Contents

   Item 1 (continued)

 

   2017 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

LOGO

 

Career Highlights

 

 

Wallace Brett Donham Professor of Business Administration, Harvard Business School (1984 to present); former Faculty Chair, Leadership Initiative, High Potentials Leadership Program and Organizational Behavior Unit

 

 

Director, Eaton Corporation, an NYSE-listed power management company providing energy-efficient solutions that manage electrical, hydraulic, and mechanical power (1994 to 2012 as Cooper Industries, Inc., prior to merger with Eaton Corporation, 2012 to present as Eaton Corporation); member of the Governance Committee and Compensation and Organization Committee

 

 

Director, Harvard Business Publishing

Qualifications and Attributes

Ms. Hill is the author of several books and articles focusing on the principles and qualifications for effective leadership and management. Through her research and academic perspectives, affiliation with Harvard Business School and experience as a public company director, Ms. Hill brings to the Board an effective understanding of market and competitive trends in executive talent development, leading innovation and corporate governance matters. She is an active member in her community serving as trustee to the Global Citizens Initiative and The Art Center College of Design and is a special representative to the board of trustees of Bryn Mawr College. Ms. Hill is a former trustee of The Bridgespan Group and the Nelson Mandela Children’s Fund. She received an A.B. degree in psychology from Bryn Mawr College, an M.A. in educational psychology from the University of Chicago and a Ph.D. in behavioral sciences from the University of Chicago and completed her post-doctoral research fellowship at the Harvard Business School.

 

STATE STREET CORPORATION    17

LINDA A. HILL Age 60, Director Since 2000 BOARD ROLES AND COMMITTEES Executive Compensation Committee Nominating and Corporate Governance Committee Technology Committee DIRECTOR QUALIFICATION HIGHLIGHTS Academic Leader Talent Development Governance Management


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   Item 1 (continued)

 

   2017 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

LOGO

 

Career Highlights

 

 

State Street Corporation, Chairman (2011 to present); Chief Executive Officer (2010 to present); President (2008 to 2014)

 

 

President and Chief Executive Officer, Boston Financial Data Services (1990 to 2000)

 

 

President and Chief Executive Officer, National Financial Data Services (1988 to 1990)

Qualifications and Attributes

Mr. Hooley joined State Street in 1986 and currently serves as Chairman and Chief Executive Officer. He served as President and Chief Operating Officer from April 2008 to December 2014. From 2002 to April 2008, Mr. Hooley served as Executive Vice President and head of Investor Services and, in 2006, was appointed Vice Chairman and Global Head of Investment Servicing and Investment Research and Trading. Mr. Hooley was elected to serve on the Board of Directors in October 2009, and he was appointed Chairman of the Board in January 2011. His leadership experience and core understanding of State Street’s full range of services brings to the Board a detailed, innovative and thorough perspective on State Street’s key operations, strategic initiatives and client relationships globally. Mr. Hooley serves as a member of the board of directors of the Federal Reserve Bank of Boston and a member of the Financial Services Forum in Washington D.C. He is a director on the board of Boys & Girls Clubs of Boston, the President’s Council of the Massachusetts General Hospital, the Massachusetts Competitive Partnership and a trustee of the board of Boston College. He received his B.S. degree from Boston College.

 

18    STATE STREET CORPORATION

JOSEPH L. HOOLEY Age 60, Director Since 2009 BOARD ROLES AND COMMITTEES Chairman of the Board Executive Committee (Chair) Risk Committee DIRECTOR QUALIFICATION HIGHLIGHTS Leadership Global Operations Financial Services International Investment


Table of Contents

   Item 1 (continued)

 

   2017 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

LOGO

 

Career Highlights

 

 

Retired Group Managing Director and Group Chief Operating Officer (2011 to 2014), HSBC Holdings, plc., an NYSE-listed banking and financial services organization; Executive Director and Chief Technology and Services Officer, HSBC Bank plc. (2007-2010); other various positions throughout his 34-year tenure.

Qualifications and Attributes

As the Group Managing Director and Group Chief Operating Officer of HSBC Holdings, plc., Mr. O’Sullivan led the bank’s global operations and information technology functions, with worldwide responsibilities for business transformation, organizational restructuring and operational effectiveness. Prior to assuming the role of Group Managing Director and Group Chief Operating Officer, Mr. O’Sullivan held various positions throughout HSBC in the U.S., Canada and Europe. His long tenure at HSBC provided him with valuable experience with the operational and technology challenges faced by a large, global financial institution as well as the management of overall company effectiveness and efficiency, including development of a global approach to expense management and operational risk management. Mr. O’Sullivan is a member of the Information Technology Advisory Committee at the University of British Columbia and a former trustee of the York University Foundation. He is a dual citizen of Canada and the U.K. and received a B.A. degree from the Ivey School of Business at Western University.

 

STATE STREET CORPORATION    19

SEAN O’ SULLIVAN DIRECTOR QUALIFICATION HIGHLIGHTS Age 61, Nominee for Director International Business Operations Global Financial Services Technology Risk Management


Table of Contents
   Item 1 (continued)   

2017 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

 

LOGO

 

Career Highlights

 

 

Retired President and Chief Executive Officer, North American Electric Reliability Corporation, NERC, a self-regulatory organization for the bulk electricity system in North America (2005 to 2009)

 

 

Director, Emera, Inc., a Toronto Stock Exchange-listed energy and services company (2010 to present)

 

 

President and Chief Executive Officer, New England Electric System (and its successor company, National Grid USA), an NYSE-listed electric utility (1998 to 2004)

Qualifications and Attributes

Mr. Sergel’s responsibilities as chief executive officer of the North American Electric Reliability Corporation included imposing statutory responsibility and regulating the industry through adoption and enforcement of standards and practices. To do so, he led NERC to establish the first set of legally enforceable standards for the U.S. bulk power system. Prior to joining NERC, he spent 25 years with the New England Electric System, where he oversaw the merger with National Grid in 2000. His extensive practical and technical expertise in navigating the energy market through regulatory change and major transactions offers the Board important perspective on the evolving financial services industry and regulatory environment. Mr. Sergel served in the United States Air Force reserve from 1973 to 1979 and has served as a director of Jobs for Massachusetts and the Greater Boston Chamber of Commerce. He is a former trustee of the Merrimack Valley United Way and the Worcester Art Museum, prior chairman of the Consortium for Energy Efficiency and was a member of the Audit Committee for the Town of Wellesley, Massachusetts. Mr. Sergel received a B.S. degree from Florida State University, an M.S. from North Carolina State University and an M.B.A. from the University of Miami.

 

20    STATE STREET CORPORATION

RICHARD P. SERGEL Age 67, Director Since 1999 BOARD ROLES AND COMMITTEES Examining and Audit Committee Executive Committee Executive Compensation Committee (Chair) Technology Committee DIRECTOR QUALIFICATION HIGHLIGHTS Regulatory Compliance Audit Mergers and Acquisitions Leadership


Table of Contents

   Item 1 (continued)

 

  

2017 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

 

LOGO

 

Career Highlights

 

 

Managing Partner and Founder, Glen Capital Partners, LLC, an alternative asset investment fund (2013 to present)

 

 

Managing Director and Vice Chairman of Global Buyout, Carlyle Group, a Nasdaq-listed global asset manager (2009 to 2014)

 

 

Chairman, Chief Executive Officer and President, PerkinElmer Corp, an NYSE-listed developer and producer of life science equipment and services (1998-2009)

 

 

Director, NXP Semiconductors, a Nasdaq-listed semiconductor manufacturer (Director 2010 to 2015 and Chairman, 2013 to 2015 as Freescale Semiconductor, Inc., prior to its acquisition by NXP Semiconductors in 2015, 2015 to present as NXP Semiconductors)

 

 

Director and 10% owner, LMI Aerospace, a Nasdaq-listed designer and provider of aerospace structures (2014 to present)

 

 

Director, Automatic Data Processing, Inc., a Nasdaq-listed provider of business outsourcing solutions (2007 to 2014)

Qualifications and Attributes

Mr. Summe has extensive management experience leading large and complex corporate organizations in evolving environments. While vice chairman of Carlyle Group, he was responsible for buyout funds in financial services, infrastructure, Japan, the Middle East and African markets and served on the firm’s operating and investment committees. His experience in private equity has afforded him a deepened exposure to understanding varied business models, practices, strategies and environments and assessing value in varied international regions. During his tenure as chairman and chief executive officer at PerkinElmer, Mr. Summe led the company’s transformation from a diversified defense contractor to a technology leader in health sciences. Prior to joining PerkinElmer, Mr. Summe held leadership positions at AlliedSignal (now Honeywell), General Electric and McKinsey & Co. Mr. Summe holds B.S. and M.S. degrees in electrical engineering from the University of Kentucky and the University of Cincinnati, and an M.B.A. with distinction from the Wharton School of the University of Pennsylvania. He has published a number of articles in the Harvard Business Review, Electronic Business, and various technical journals and is in the Engineering Hall of Distinction at the University of Kentucky.

DIRECTORS NOT STANDING FOR REELECTION AT THE 2017 ANNUAL MEETING

Ronald L. Skates’ and Thomas J. Wilson’s service as directors will end at the 2017 annual meeting, and the Board thanks them both for their service. Mr. Skates served on the Examining and Audit Committee, Nominating and Corporate Governance Committee, Risk Committee and Technology Committee during 2016 and has been a member of State Street’s Board of Directors since 2002. Mr. Wilson, a director since 2012, served on the Nominating and Corporate Governance Committee and Risk Committee during 2016.

 

STATE STREET CORPORATION    21

GREGORY L. SUMME Age 60, Director Since 2001 BOARD ROLES AND COMMITTEES Executive Committee Executive Compensation Committee Nominating and Corporate Governance Committee (Chair) DIRECTOR QUALIFICATION HIGHLIGHTS Global Finance Governance Leadership Investment


Table of Contents

2017 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

 

In this compensation discussion and analysis, or CD&A, we describe our approach to executive compensation, including philosophy, design, process and risk alignment. We also describe 2016 compensation decisions for the following named executive officers, who we refer to as our NEOs.

 

 

Joseph L. Hooley — Chairman and Chief Executive Officer

 

 

Michael W. Bell — Executive Vice President and Chief Financial Officer

 

 

Michael F. Rogers — President and Chief Operating Officer

 

 

Ronald P. O’Hanley — Vice Chairman and President and Chief Executive Officer of State Street Global Advisors

 

 

James S. Phalen — Vice Chairman and Head of the Office of Regulatory Initiatives

In this CD&A, references to the Compensation Committee, or to the Committee, are references to the Executive Compensation Committee of our Board of Directors.

CD&A Table of Contents

 

    

Page

 

 

  Executive Summary

 

 

 

22  

 

 

  Shareholder Outreach and “Say-on-Pay”

 

 

 

26  

 

 

   Compensation Committee Process Concerning Risk Alignment

 

 

 

26  

 

 

  Compensation Philosophy

 

 

 

27  

 

 

  Compensation Design Elements

 

 

 

28  

 

 

  2016 Compensation Decisions

 

 

 

29  

 

 

  Other Elements of Our Process

 

 

 

36  

 

 

  Other Elements of Compensation

 

 

 

37  

 

 

   Executive Equity Ownership Guidelines, Practices and Policies

 

 

 

39  

 

 

   Tax Deductibility of Executive Compensation

 

 

 

40  

 

 

Executive Summary

2016 Corporate Performance Highlights

In 2016, we deepened and expanded our client relationships, resulting in new asset servicing commitments of $1.4 trillion, continued to establish our position as a leader in technology-driven financial services both to improve operational performance and deliver innovative client solutions, made critical investments to prepare State Street and its clients for the future, and achieved solid financial results. Importantly, we extended our core investment management capabilities through our acquisition of GE Asset Management. We also intensified our focus on controlling expenses, managing risk and optimizing our capital position in an effort to create long-term value for our shareholders. The revenue environment remained challenging, characterized by continued slow economic growth and low interest rates, geopolitical shocks and volatile markets, particularly in Europe and emerging markets. Despite those challenges, we generated increases over 2015 in earnings per share and return on average common equity, maintained stable expenses and made strategic investments to further develop our digital enterprise. Below are selected key indicators we use to monitor our performance. The Committee also considered these indicators in evaluating 2016 corporate performance for compensation purposes. Additional factors considered by the Committee are also described under the heading “2016 Compensation Decisions—Corporate Performance.”

 

 

 

22    STATE STREET CORPORATION


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   Executive Compensation (continued)

 

   2017 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

Financial Performance Highlights

Consolidated Financial Performance

 

  ($ In millions, except per share data)

 

  

2016

 

   

2015

 

   

% Change     

 

 

 

  Revenue

 

  

 

$

 

 

  10,207

 

 

 

 

 

 

$

 

 

  10,360

 

 

 

 

 

 

 

 

 

(1.5)%

 

 

 

 

 

  Total fee revenue

 

 

  

 

 

 

 

8,116

 

 

 

 

 

 

 

 

 

8,278

 

 

 

 

 

 

 

 

 

(2.0)%

 

 

 

 

  Diluted earnings per share (EPS)

 

  

 

 

 

 

4.97

 

 

 

 

 

 

 

 

 

4.47

 

 

 

 

 

 

 

 

 

11.2%

 

 

 

 

 

  Return on average common equity (ROE)

 

 

  

 

 

 

 

10.5

 

 

 

 

 

 

 

 

9.8

 

 

 

 

 

 

 

 

0.7%

 

 

 

 

Consolidated total revenue for 2016 decreased from 2015, presented in accordance with generally accepted accounting principles (GAAP). Consolidated total revenue presented on an operating (non-GAAP) basis(1) increased from 2015, and includes revenue from non-taxable sources on a fully taxable equivalent basis and excludes the impact of revenue and expenses outside of the normal course of business. Consolidated EPS and ROE for 2016 each increased from 2015 on both a GAAP basis and an operating basis.

Total Shareholder Return

 

     

State Street

 

   

S&P

Financial

Index

 

   

Peer

Group

Median(1)

 

 

 

  1-Year TSR

 

 

  

 

 

 

 

19.81

 

 

 

 

 

 

 

 

22.75

 

 

 

 

 

 

 

 

23.58

 

 

 

 

  3-Year TSR

 

  

 

 

 

 

12.16

 

 

 

   

 

39.17

 

 

   

 

38.63

 

 

(1)

Based on our 12-firm compensation peer group; for more information on our compensation peer group see below under the heading, “Other Elements of Our Process—Peer Group and Benchmarking.”

Strategic Objective Performance Highlights

We made progress on several important strategic objectives during 2016. These included:

 

 

Achieved new asset servicing commitments of $1.4 trillion, reflecting strong growth with significant participation from Europe

 

 

Began implementing State Street Beacon, our multi-year strategy to digitize our business, deliver significant value and innovation for our clients and lower expenses across the organization; more than doubled the estimated annual pre-tax savings in 2016 to $175 million(2)

 

 

Completed our acquisition of GE Asset Management, extending our core investment management capabilities, including in the high-growth outsourced chief investment officer markets, and enhancing our capabilities to deliver value-added solutions to our client base

 

 

Invested in data and analytics solutions to deliver client value across all of our businesses, including integrated solutions that improve the data, speed and services to our clients

 

 

Continued to advance risk excellence as a top organizational priority, making considerable progress in strengthening our controls and operating environment and reinforcing a strong culture of Risk Excellence

For further details on these and other initiatives, see below under the headings “2016 Compensation Decisions—Corporate Performance” and “2016 Compensation Decisions—Individual Compensation Decisions.”

 

(1)

Financial results presented on an operating basis are a non-GAAP presentation. State Street measures and reports its financial performance in accordance with U.S. generally accepted accounting principles, referred to as GAAP. State Street also separately measures and compares its financial performance on a non-GAAP basis, referred to as operating basis, because it believes this presentation supports meaningful comparisons from period to period and the analysis of comparable financial trends with respect to State Street’s normal ongoing business operations. State Street believes operating-basis financial information, which reports revenue from non-taxable sources, such as interest revenue from tax-exempt investment securities and processing fees and other revenue associated with tax-advantaged investments, on a fully taxable-equivalent basis and excludes the impact of revenue and expenses outside of the normal course of business, facilitates an investor’s understanding and analysis of State Street’s underlying financial performance and trends in addition to financial information prepared and reported in accordance with GAAP. Operating-basis and other non-GAAP financial information should be considered in addition to, not as a substitute for or superior to, financial information prepared in accordance with GAAP.

(2)

Estimated pre-tax expense savings improvements relate only to State Street Beacon and the targeted staff reductions announced as part of our third quarter 2015 financial results, and are based on projected improvement from our full-year 2015 operating-basis expenses, all else being equal. The full effect of the savings generated each year will be felt the following year. Actual expenses may increase or decrease in the future due to other factors.

 



 

STATE STREET CORPORATION    23


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   Executive Compensation (continued)

 

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Additional Performance Highlights

Returning Value to Shareholders

 

 

We declared total quarterly common stock dividends of $1.44 per share in 2016, or approximately $559 million, compared to total quarterly common stock dividends of $1.32 per share, or approximately $536 million, in 2015

 

 

We purchased approximately 21.1 million shares of our common stock in 2016 at a total cost of approximately $1.37 billion, compared to purchases of approximately 20.5 million shares at a total cost of approximately $1.52 billion in 2015

Asset Servicing and Asset Management Performance

 

  ($ In trillions, except where otherwise noted)

 

  

2016

 

    

2015

 

    

% Change

 

 

 

  Assets under custody and administration(1)

 

  

 

$

 

 

  28.77

 

 

 

 

  

 

$

 

 

  27.51

 

 

 

 

  

 

 

 

 

4.6

 

 

 

 

  Assets under management(1)

 

  

 

 

 

 

2.47

 

 

 

 

  

 

 

 

 

2.25

 

 

 

 

  

 

 

 

 

9.9

 

 

 

(1)

As of year-end.

Capital Levels

Our regulatory capital levels remained well above current regulatory minimum requirements in 2016.

 

  Capital Ratio

 

 

State Street Corporation

December 31, 2016(1)

 

  

Minimum    

Requirements 2016(2)    

 

 

  Common Equity Tier 1 Risk-Based Capital

 

 

 

11.6%

 

  

 

5.5%    

 

 

  Tier 1 Risk-Based Capital

 

 

 

14.7%

 

  

 

7.0%    

 

 

  Total Risk-Based Capital

 

 

 

16.0%

 

  

 

9.0%    

 

 

  Tier 1 Leverage

 

 

 

6.5%

 

  

 

4.0%    

 

(1)

Calculated in conformity with the “standardized approach” provisions of the Basel III final rule issued by the Board of Governors of the Federal Reserve System in July 2013.

(2)

Minimum common equity tier 1 risk-based capital, minimum tier 1 risk-based capital and minimum total risk-based capital presented include the transitional capital conservation buffer as well as the estimated transitional G-SIB surcharge being phased-in beginning January 1, 2016 through January 1, 2019 based on an estimated 1.5% surcharge in all periods.

CCAR Results

We completed the Federal Reserve’s 2016 Comprehensive Capital Analysis and Review, or CCAR process, without Federal Reserve objection to our 2016 capital plan. Under Federal Reserve rules, we must submit an annual capital plan to the Federal Reserve, taking into account the results of separate stress tests designed by us and by the Federal Reserve.

Other Matters

State Street’s 2016 performance is reviewed in greater detail in our annual report on Form 10-K, accompanying this proxy statement and previously filed with the Securities and Exchange Commission, or SEC.

2016 Corporate and NEO Performance Evaluations

Corporate Performance

In determining our NEOs’ compensation for 2016, the Compensation Committee evaluated State Street’s overall corporate performance. This evaluation included a structured assessment of corporate performance based on three discrete scorecards that capture State Street’s annual performance against financial, strategic and risk management objectives. The Committee’s conclusions are shown below:

 

Corporate Performance Scorecards

 

 

2016 Committee Evaluation

 

 

Financial Performance

 

 

 

Below Expectations

 

 

Strategic Objectives Performance

 

 

 

Above Expectations

 

 

Risk Management Performance

 

 

 

At Expectations

 

 

Overall Performance

 

 

 

At Expectations

 

Although overall performance was “At Expectations” for 2016, the Committee approved annual incentive awards for all NEOs below target, which is in line with the financial performance evaluation. Annual incentive awards for our NEOs ranged from 57% to 89% of target, with our CEO receiving an annual incentive at 83% of target. Consistent with its design objective, the long-term incentive component (covering grants made in 2017) was approved at target for all NEOs.

 



 

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CEO Performance and Compensation

Overall, Mr. Hooley was paid below his target incentive for 2016.

Annual Incentive. The Compensation Committee awarded Mr. Hooley an annual incentive at 83% of target for 2016. This reflects the Committee’s favorable evaluation of Mr. Hooley’s overall 2016 performance, including his significant progress in executing our digital transformation plan, the acquisition of GE Asset Management and the return to shareholders of approximately $1.9 billion of capital in the form of common stock dividends and share repurchases. It also reflects the fact that 2016 financial performance was below expectations. Consequently, the Committee believed an annual incentive at 83% of target to be appropriate. Mr. Hooley did not receive an annual incentive award for 2015 due to below expectations corporate performance and the effects of previously disclosed non-ordinary course contingencies (discussed in last year’s proxy statement). Last year’s decision also reflected Mr. Hooley’s request that he not receive an annual incentive for 2015.

Long-Term Incentive. The long-term incentive is based on future stock price performance and a portion of the long term incentive is not paid unless specific financial targets are achieved. Therefore, our long-term incentive awards generally remain consistent with target compensation levels, absent a change in the executive’s responsibilities, State Street’s long-term performance trend or market practices. The Committee awarded Mr. Hooley 100% of his long-term incentive for 2016. For 2015, the Committee reduced the long-term incentive component for many of our 2015 NEOs below target, including for Mr. Hooley whose long-term incentive was paid at 90% of target, due to the non-ordinary course contingencies noted above.

For additional information concerning how the Committee incorporated the individual performance of Mr. Hooley and our other NEOs into 2016 compensation decisions, see “2016 Compensation Decisions—Individual Compensation Decisions.”

Sound Compensation and Corporate Governance Practices

Our NEO compensation practices are designed to support good governance and mitigate excessive risk-taking incentives. We regularly review and refine our governance practices considering several factors, including feedback from ongoing engagement with our shareholders.

 

LOGO

 

LOGO

 



 

STATE STREET CORPORATION    25

What We Do Performance-based restricted stock units (RSUs) incorporate a ROE target that increased progressively in 2013, 2014 and 2015 Performance-based RSUs have a three-year performance period that promotes long-term performance Deferral of a significant amount of incentive compensation discourages short-term risk taking at the expense of long-term results Cash-based element of deferred compensation awards mitigates dilutive effects of deferred compensation Active engagement with our shareholders on compensation and governance issues Clawback and forfeiture policies permit the Compensation Committee to recoup incentive compensation payments Overlapping membership between the Compensation Committee and our Risk Committee “Double-trigger” change-of-control vesting in effect for all deferred incentive compensation awards granted on and after February 2014. These awards require a qualifying termination following a change of control before vesting Share ownership policy, including holding requirements, further aligns NEO incentive compensation design with the risks and performance results experienced by our shareholders. Each of our NEOs is in compliance with these guidelines An independent compensation consultant and independent legal counsel advise the Compensation Committee on executive compensation matters Non-compete and other restrictive covenants apply to deferred incentive awards Annual risk review by the Compensation Committee of the design and operation of our incentive compensation program What We Do Not Do No change-of-control excise tax gross-up No “single-trigger” change-of-control vesting on all awards granted on and after February 2014 No option repricing without shareholder approval No short-selling, options trading or hedging transactions in State Street securities No excessive perquisites No tax gross-ups on perquisites


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Shareholder Outreach and “Say-on-Pay”

In reviewing compensation design and governance practices, the Compensation Committee considers market practice and regulatory guidance, as well as other factors, including shareholder feedback. The Committee receives feedback from our shareholders through two primary channels:

 

 

Shareholder Outreach. We engage several of our largest shareholders to understand their specific perspectives on our compensation and governance programs. For 2016, we held discussions with shareholders representing more than 30% of our outstanding common stock

 

 

“Say-on-Pay.” At our annual shareholder meeting, we ask our shareholders to approve a non-binding advisory proposal on executive compensation. At our 2016 annual meeting, our shareholders approved that proposal with the vote of 89% of the votes cast

Based on the results of our “say-on-pay” vote and shareholder outreach, the Committee believes our shareholders, in general, support our overall executive compensation program. For the 2016 compensation year, we therefore continued many of the elements of our existing compensation program, such as maintaining a high level of equity and deferral for incentive compensation awards to our NEOs, as well as emphasizing pay for performance and alignment with shareholder interests.

One area of specific discussion we had with several of our shareholders over the past few years involved the design of our performance-based RSUs, including the appropriate performance target and the length of the performance period. In response to those discussions, we have introduced the following changes to the design of our performance-based RSUs:

 

 

NEW for 2016 Increased the minimum payout threshold ROE for the performance-based RSUs from 0.01% to 5% with an associated increase to the threshold payout rate from 30% to 40%. The increased threshold eliminates any payout for ROE performance below 5%

 

 

NEW for 2016 Increased the payout opportunity for the performance-based RSUs for performance above the current 11% ROE target. The maximum opportunity for 15% ROE or greater is now 140% of the initial number of performance-based RSUs awarded (an increase from 120%), and provides for symmetrical payouts for performance above and below target

 

 

NEW in 2015 Increased the ROE performance target used in performance-based RSUs to 11% for 2015 awards, from 9% for 2014 awards and from 8% for 2013 awards, reflecting evolving market conditions and increased visibility into the effects of new regulatory standards. We believe that this performance target is consistent with our continuing objective of aligning our incentives with shareholder interests

Compensation Committee Process Concerning Risk Alignment

For 2016, we continued our focus on aligning incentive compensation with appropriate risk management principles. We provide incentives designed not to encourage unnecessary or excessive risk-taking and have established process controls and oversight. These features include:

 

 

Compensation Committee Interaction and Overlap with Risk Committee. The Compensation Committee regularly communicates with the Risk Committee of our Board of Directors to integrate the Risk Committee’s input into compensation decisions. The Chair of the Risk Committee also serves on the Compensation Committee

 

 

Corporate Risk Summary Review. The Compensation Committee periodically reviews a corporate risk summary, prepared by the Chief Risk Officer, evaluating firm-wide risk in several categories

 

 

Annual Compensation Risk Review. The Compensation Committee annually reviews a presentation by the Chief Risk Officer and the Chief Human Resources Officer evaluating our compensation programs and covering:

 

   

the alignment of State Street’s compensation plans with its safety and soundness

 

   

the activities of a multi-disciplinary control function committee created by management to formally review and assess incentive compensation arrangements throughout the organization

 

   

the identification of executives and other individuals whose roles may expose State Street to material amounts of risk (referred to as “material risk-takers”)

 

   

the mechanisms in place for monitoring risk performance and, where appropriate, implementing risk-based adjustments to incentive compensation

 

 

Risk-Based Adjustments to Incentive Compensation. We use a two-pronged process for risk-based adjustments to incentive compensation awards for material risk-takers. This process involves, as appropriate, both: (1) adjustments at the time awards

 

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are made (so-calledex ante” adjustments) and (2) adjustments after the awards are made (so-calledex post” adjustments), through possible recoupment of incentive compensation that has already been awarded via forfeiture (before vesting and delivery) or clawback (after vesting and delivery). For more information, see the discussion under “Other Elements of Compensation – Recourse Mechanisms” below

 

 

Emphasis on Deferral and Equity-Based Compensation. We maintain significant levels of deferred compensation and equity-based compensation for our executives. Combined, these elements align an executive’s compensation with the risks and performance results experienced by our shareholders. The high level of deferral places a significant amount of compensation at risk for possible forfeiture in specified circumstances.

For a further discussion of the risk alignment of our compensation practices, see below under the heading “Alignment of Incentive Compensation and Risk.”

Compensation Philosophy

State Street’s compensation program for NEOs and other executive officers aims to:

 

 

attract, retain and motivate superior executives

 

 

reward those executives for meeting or exceeding annual and long-term financial and strategic objectives

 

 

drive long-term shareholder value and financial stability

 

 

achieve the preceding goals in a manner aligned with sound risk management and our corporate values

 

STATE STREET CORPORATION    27


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   Executive Compensation (continued)

 

   2017 NOTICE OF MEETING AND PROXY STATEMENT   

 

Compensation Design Elements

Elements of Compensation. Key elements of our total compensation program for our NEOs for 2016 are described below.

 

   Element   Description    Considerations and Rationale  

Clawback,  

Forfeiture  

and  

Ex Ante  

Mechanisms(1)  

  Salary

  Base Salary

 

•   Fixed annual cash amount

•   Paid periodically throughout the year

  

•   Compensates employees throughout the year for day-to-day responsibilities

 

  Annual Incentive Compensation

  Cash Incentive

  (non-deferred)

 

•   Variable cash amount

•   Paid as part of annual incentive compensation

  

•   Provides a limited, immediately paid incentive opportunity based on annual performance

 

  Deferred Value

  Awards (DVAs)

 

•   DVAs are units representing a notional investment in a money market fund

•   Upon vesting, notional units are paid in cash

•   Vest ratably in 16 quarterly installments beginning in May 2017

•   Number of actual units awarded is increased to provide an estimated annual return of approximately 2.50% over the deferral period

  

•   Subject to time vesting requirements

•   Retains benefits of deferral for a portion of cash-based incentive compensation

•   Cash-based compensation mitigates the dilutive effects of deferred compensation

 

  Long-Term Incentive Compensation

  Performance -

  Based

  Restricted Stock

  Units (RSUs)

 

•   Equity-based compensation

•   The number of RSUs ultimately earned for awards based on 2016 performance are based on State Street’s average annual GAAP ROE performance over the three-year performance period 2017-2019, subject to adjustment for pre-established, objectively determinable factors(2)

•   GAAP ROE performance target is 11%; RSUs are earned under the following schedule:

 

 

LOGO

 

•   RSUs ultimately earned “cliff” vest in one installment in February 2020

  

•   Subject to performance-based vesting to align with long-term performance

•   ROE is an important financial performance metric that is monitored closely in our industry

   NEW for 2016 ROE threshold for receiving any of the shares awarded increased from 0.01% to 5% with threshold payout rate increasing from 30% to 40%

   NEW for 2016 Each award has a maximum payout of 140% (increased from 120%) of the initial number of RSUs awarded which, combined with other design features, results in a risk-balanced incentive for performance above the target

•   Equity-based compensation directly reflects the rewards and risks shared by our NEOs and our shareholders

 

  Deferred Share

  Awards (DSAs)

 

•   Equity-based compensation

•   Vest ratably in four annual installments beginning in February 2018

  

•   Subject to time vesting requirements

•   Equity-based compensation directly reflects the rewards and risks shared by our NEOs and our shareholders

 

 

(1)

For more information, see the discussion under “Other Elements of Compensation—Recourse Mechanisms” below.

(2)

Early in each compensation year, the Compensation Committee identifies specific types of objectively determinable factors that could affect performance measures during the year and which will be excluded from the performance measure calculation. Factors that result in an adjustment to the calculation of performance measures

 

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include: acquisitions, dispositions and similar transactions and related securities issuances and expenses; changes in accounting principles, tax or banking law or regulations; litigation or regulatory settlements arising from events that occurred prior to the performance period; and restructuring charges and expenses. However, the Committee retains the power to exercise negative discretion, as it deems appropriate, to reduce the actual payouts under performance awards as a result of any of these factors.

Restrictive Covenants. Each of our deferred incentive compensation awards includes restrictive covenants applicable to our NEOs. Beginning with awards granted for 2015 performance, we added provisions concerning non-competition to the non-solicitation, confidentiality and non-disparagement provisions included historically in these awards.

2016 Compensation Decisions

Total Compensation Approach

The Compensation Committee evaluates individual compensation for our NEOs and other executive officers by looking at total compensation, consisting of base salary and incentive compensation.

Base Salary. Base salary is a fixed annual cash amount and is a relatively small portion of total compensation for the NEOs. 2016 annual base salary rates for the NEOs remained unchanged from their levels in 2015.

Incentive Compensation. Incentive compensation is a variable amount, comprising both equity-based elements, paid as a long-term incentive, and cash-based elements, paid as an annual incentive. The Committee believes a significant amount of incentive compensation should take the form of both deferred awards and equity awards. Therefore, to emphasize long-term performance, a higher percentage of each NEO’s total incentive compensation is delivered as an equity-based long-term incentive. This emphasis on deferred awards is also consistent with regulatory guidance for major financial institutions.

By paying a significant portion of our NEOs’ compensation in equity and by requiring vesting of that component over multiple years, the Committee creates an incentive structure where both the rewards and risks of share ownership are shared by our executives and shareholders.

For 2016, the Committee decided to award annual incentives below target for all NEOs reflecting financial performance below our expectations. For a description of our annual and long-term incentive compensation targets, see below.

The following charts highlight the percentages of our CEO’s and other NEOs’ (on average) 2016 total compensation that are delivered via deferred incentives, equity-based incentives, and vehicles that are subject to State Street’s future financial/stock performance.

 

2016 Total Compensation Mix: CEO   

Average 2016 Total Compensation Mix:

Other NEOs

 

LOGO

  

 

LOGO

Total Equity-Based Compensation: 74%

Total Cash-Based Compensation: 26%

  

Total Equity-Based Compensation: 65%

Total Cash-Based Compensation: 35%

 

STATE STREET CORPORATION    29


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Individual Compensation Targets. For 2016, the Compensation Committee established compensation targets for each NEO’s annual and long-term incentive. These targets were based upon an assessment of the executive’s role and responsibilities at State Street and relevant competitive and market factors, as well as internal equity.

 

 

Annual Incentive. The annual incentive is designed to reflect the executive’s performance for the year. Therefore, the actual annual incentive can vary from target based on State Street’s and the executive’s performance from year to year. The final annual incentive award can range between 0% and 200% of target to reflect performance. 2016 annual incentive awards (granted in February 2017) for our NEOs ranged from 57% to 89% of target.

 

 

Long-Term Incentive. The long-term incentive is designed to reflect State Street’s long-term performance trend, as well as the core responsibilities associated with the executive’s role over time. Therefore, the actual long-term incentive awarded is expected to be consistent from year to year, absent a change in (1) State Street’s long-term performance trend, (2) the executive’s responsibilities or (3) market compensation practices. Absent any of these changes, the long-term incentive may still vary within a range of 80% to 120% of the target based on an assessment of actions or behaviors that affect the NEOs’ long-term value to State Street. These behaviors may include prioritizing cross-organization initiatives in support of State Street’s business strategy, serving as an ethical role model, enhancing a culture of compliance and prudent risk-taking and ensuring management practices are in place to deliver the required talent pipeline as well as other considerations deemed appropriate by the Committee. 2016 long-term incentive awards (granted in February 2017) were approved at target for all NEOs.

In making individual incentive compensation decisions for each of our NEOs, the Committee determines their annual and long-term incentive separately. The Committee then adds those two amounts together to reach a total incentive for the executive.

The 2016 annual and long-term incentive compensation targets established by the Compensation Committee for each of our NEOs are listed in the following chart:

 

  Name   

Base

Salary Rate

     Target Incentive Compensation(1)      Target Total
Compensation
 
      Annual      Long-Term      Total     
   

 

  Joseph L. Hooley

 

  

 

$

 

 

1,000,000

 

 

 

 

  

 

$

 

 

3,000,000

 

 

 

 

  

 

$

 

 

10,000,000

 

 

 

 

  

 

$

 

 

13,000,000

 

 

 

 

  

 

$

 

 

14,000,000

 

 

 

 

 

  Michael W. Bell(2)

 

  

 

 

 

 

800,000

 

 

 

 

  

 

 

 

 

1,950,000

 

 

 

 

  

 

 

 

 

4,000,000

 

 

 

 

  

 

 

 

 

5,950,000

 

 

 

 

  

 

 

 

 

6,750,000

 

 

 

 

 

  Michael F. Rogers

 

  

 

 

 

 

908,710

 

 

 

 

  

 

 

 

 

3,000,000

 

 

 

 

  

 

 

 

 

6,091,290

 

 

 

 

  

 

 

 

 

9,091,290

 

 

 

 

  

 

 

 

 

10,000,000

 

 

 

 

 

  Ronald P. O’Hanley

 

  

 

 

 

 

800,000

 

 

 

 

  

 

 

 

 

2,900,000

 

 

 

 

  

 

 

 

 

5,300,000

 

 

 

 

  

 

 

 

 

8,200,000

 

 

 

 

  

 

 

 

 

9,000,000

 

 

 

 

 

  James S. Phalen(2)

 

  

 

 

 

 

850,000

 

 

 

 

  

 

 

 

 

2,800,000

 

 

 

 

  

 

 

 

 

5,200,000

 

 

 

 

  

 

 

 

 

8,000,000

 

 

 

 

  

 

 

 

 

8,850,000

 

 

 

 

 

(1)

The Committee retains the ability to deviate from the annual and long-term incentive targets (higher or lower), their designed purposes or the form of compensation delivered as it deems appropriate based on performance or other factors or circumstances.

(2)

Mr. Phalen ceased serving as an executive officer in January 2017 and Mr. Bell ceased serving as an executive officer in March 2017.

 

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Compensation Assessment Framework

For each NEO, the Compensation Committee determines the appropriate level of total compensation for the year. This determination is based on a subjective evaluation of many factors, including corporate performance, individual performance and market, regulatory and shareholder considerations. In evaluating these factors and making 2016 compensation decisions for the NEOs, the Committee used the following framework:

 

LOGO

Performance assessed under this framework drives incentive compensation determinations relative to each executive’s targets, particularly for the annual incentive. The Committee balances corporate and individual results to reach final total compensation decisions. In doing so, the Committee may consider additional factors or give greater or less weight to specific notable factors.

Corporate Performance

 

LOGO

Framework Evaluation. As referenced above, the corporate performance framework uses a structured evaluation of three discrete and multi-factor scorecards, which contain both quantitative and qualitative metrics and cover:

 

 

financial performance

 

 

performance against strategic objectives

 

 

risk management performance, including the risk management performance of significant individual business lines and functions

The Compensation Committee received financial, strategic objectives and risk management performance scorecard updates in July and December 2016. The Compensation Committee also received an additional interim financial performance scorecard update in September 2016, as well as the final 2016 financial, strategic objectives and risk management scorecards in early 2017. The Committee’s overall evaluation of corporate performance, balancing positive and negative performance outcomes in each of these scorecards, is a primary driver of incentive compensation decisions for our NEOs.

In 2016, we deepened and expanded our client relationships, resulting in new asset servicing commitments of $1.4 trillion, continued to establish our position as a leader in technology-driven financial services both to improve operational performance and deliver innovative client solutions, made critical investments to prepare State Street and its clients for the future and achieved solid financial results. Importantly, we extended our core investment management capabilities through our acquisition of GE Asset Management. We also intensified our focus on controlling expenses, managing risk and optimizing our capital position in an effort to create long-term value for our shareholders. The revenue environment remained challenging, characterized by continued slow economic growth and low interest rates, geopolitical shocks and volatile markets, particularly in Europe and emerging markets. Despite those challenges, we generated increases over 2015 in earnings per share and return on average common equity, maintained stable expenses, and made strategic investments to further develop our digital enterprise. Though we assessed our financial performance as below expectations, earnings per share growth and return on average common equity were above the median of our peer group and we delivered a total return to shareholders of 19.81%.

 

STATE STREET CORPORATION    31

Corporate Performance Financial Performance (Absolute and Relative) Strategic Objectives Performance Risk Management Performance Individual Performance CEO Assessment of Executives’ Performance (and Compensation Recommendations) Committee Assessment of CEO and Executives Other Independent Directors’ Assessment and Input for CEO and Executives Amount and Form of Incentive Compensation Additional Factors Considered Market Compensation Levels, Trends and Practices Regulatory Considerations Shareholder Outreach and Say on Pay Results


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A brief description of each of the three performance scorecards follows:

 

  Performance Scorecard   Key Areas Reviewed   2016 Performance Highlights  

2016 Committee

Evaluation

  Financial Performance  

•    Revenue

•    EPS

•    ROE

•    Total shareholder return

 

•    Revenue decreased from 2015 on a GAAP basis, but increased on an operating basis; total fee revenue and net interest revenue also decreased from 2015 on a GAAP basis, but increased on an operating basis; EPS and ROE increased from 2015 on both a GAAP and operating basis

•    Selected 2016 GAAP-basis performance metrics, compared to the median of our 12-firm compensation peer group.(1) Results as follows:

 

  Below Expectations
       

2016 Performance Metric

 

12-Firm Compensation

Peer Group(1)

   
   

 

Revenue growth

 

 

 

 

 

Below median    

 

 
   

 

EPS growth

 

 

 

 

 

Above median    

 

 
   

 

Return on equity

 

 

 

 

 

Above median    

 

 
   

 

Total shareholder return (1-Year)

 

 

 

 

 

Below median    

 

 
                 

  Strategic Objectives

  Performance

 

•    Strengthen our foundation

•    Deliver highly valued services and solutions to our clients

•    Engage our people

•    Drive our strategy

 

•    Achieved new asset servicing commitments of $1.4 trillion, reflecting strong growth with significant participation from Europe

•    Managed expenses well

•    Completed our acquisition of GE Asset Management, extending our core investment management capabilities, including in the high-growth outsourced chief investment officer markets and enhancing our capabilities to deliver value-added solutions to our client base

•    Began implementing State Street Beacon, our multi-year strategy to digitize our business, deliver significant value and innovation for our clients and lower expenses across the organization, resulting in $175 million in annual pre-tax cost savings, which is more than double the estimated savings(2)

•    Invested in solutions to deliver client value across all of our businesses, including data and analytics

•    Returned a total of approximately $1.9 billion of capital to shareholders in the form of common stock dividends and share repurchases

•    Further embedded a culture of Risk Excellence through a focus on constructive challenge and debate, training and coaching and desired leadership behaviors

  Above Expectations

  Risk Management

  Performance

 

•    Financial risk

•    Non-financial risk

•    Business unit risks

•    Capital/stress testing

•    Regulatory posture

 

•    Positive trends in performance across the firm’s credit portfolio and asset liability management activities

•    Strong performance across the firm’s Risk Excellence initiatives

•    Along with several other large banks, State Street’s Resolution Plan, submitted in July 2015, was deemed to be non-credible by the Federal Reserve and Federal Deposit Insurance Corporation in April 2016. However, identified deficiencies were determined to be adequately remedied in December 2016

•    Completed the Federal Reserve’s March 2016 CCAR process, without the Federal Reserve objecting to our 2016 capital plan

  At Expectations
  Overall Performance  

•    Financial performance

•    Strategic objectives performance

•    Risk management performance

 

    Reflects an overall assessment of all three summaries of corporate performance

  At Expectations

 

(1)

Our 12-firm compensation peer group is described below under the heading, “Other Elements of Our Process—Peer Group and Benchmarking.”

(2)

Estimated pre-tax expense savings improvements relate only to State Street Beacon and the targeted staff reductions announced as part of our third quarter 2015 financial results, and are based on projected improvement from our full-year 2015 operating-basis expenses, all else being equal. The full effect of the savings generated each year will be felt the following year. Actual expenses may increase or decrease in the future due to other factors.

 

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Individual Compensation Decisions

 

LOGO

In addition to State Street’s overall performance described above, the Committee also considered each executive’s individual performance in determining the total compensation for each NEO. The Committee assesses individual performance relative to objectives established by our Board of Directors and reviewed by the Compensation Committee at the beginning of the year. For 2016, these corporate goals fell into the following categories:

 

 

strengthening our foundation

 

 

delivering highly valued services and solutions to our clients

 

 

engaging our people

 

 

driving our strategy

Mr. Hooley. During 2016, Mr. Hooley continued to strengthen State Street’s strategic position through executing our digital transformation plan and acquiring GE Asset Management. Mr. Hooley also focused on the following areas, which directly support State Street’s long-term strategy and the corporate goals noted above:

 

 

Building on our strong core

 

   

Managed expenses, resulting in our ability to fund strategic investments

   

Delivered value added solutions for many clients through our sector-based sales strategy, resulting in a significant increase in new asset servicing mandates from 2015

 

 

Achieving a digital enterprise

 

   

Delivered tangible benefits to many clients, such as better data quality, faster service delivery and real-time insights through implementation of new operational processes and technology as part of our digital transformation

   

Continued to improve our technology architecture and operating model

   

Outperformed our digital transformation plan by achieving more than double the estimated annual pre-tax expense savings for 2016

 

 

Pursuing new opportunities

 

   

Advanced our strategy to invest in higher growth and return businesses with the acquisition of GE Asset Management, which strengthened State Street Global Advisors’ position as a premier provider of innovative client solutions

   

Launched innovative products to help clients meet new regulatory requirements and expand into new markets

   

Extended our leadership position in the strategic offshore servicing markets in Luxembourg and Ireland

   

Furthered our State Street Global Exchange strategy to build an open software, data and analytics platform to support clients’ evolving risk and portfolio management needs

 

 

Maintaining our capital strength

 

   

Completed the Federal Reserve’s March 2016 CCAR process, without the Federal Reserve objecting to our 2016 capital plan

   

Continued to return capital to our shareholders by returning approximately $1.9 billion through common stock dividends and repurchases in 2016

   

Strengthened our capital position by actively working with clients to manage deposits to regulate the size of our balance sheet and improve returns

 

 

Strengthening our foundation

 

   

Continued to advance Risk Excellence as a top organizational priority by developing and executing a multi-year plan to strengthen culture, controls and governance

   

Strengthened our workforce through increased diversity, internal mobility and professional development, and invested in talent management technology

 

STATE STREET CORPORATION    33

Corporate Performance Individual Performance Amount and Form of Incentive Compensation


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Mr. Bell. Mr. Bell successfully managed State Street’s balance sheet, optimizing capital levels and return through disciplined liability pricing, deployment of interest rate capacity and active management of funding and swap activity. As Chief Financial Officer, Mr. Bell led the effort to reduce expenses despite a challenging revenue environment in 2016. His actions earned State Street positive results under the Federal Reserve’s annual CCAR stress test and strengthened the liquidity of our investment portfolio. Further, he improved the effectiveness and efficiency of the Finance Division’s operating model through implementing simplified budgeting and forecasting processes. Mr. Bell improved talent in the Finance Division with key senior level hires in 2016 and effectively planned a transition of Chief Financial Officer responsibilities to a new Chief Financial Officer in 2017.

In March 2016, we announced that Mr. Bell would step down from his role as Chief Financial Officer. To provide for a smooth transition of leadership of the Finance Division, Mr. Bell agreed to continue to serve State Street as Chief Financial Officer during the search for his successor. In April 2016, the Committee approved a transition agreement for Mr. Bell. The agreement provides specified benefits to Mr. Bell, contingent upon his continued service, including a 2016 incentive compensation award, subject to the Committee’s discretion and corporate and individual performance, as well as continued vesting of his outstanding deferred incentive compensation awards in accordance with the terms of our incentive plans and awards. On February 28, 2017, we appointed Eric Aboaf to serve as Chief Financial Officer, in accordance with this transition plan.

Mr. Rogers. Mr. Rogers continues to drive our digitization effort through State Street Beacon, which is differentiating State Street in the market, positively impacting our clients and controlling expenses. In 2016, he also successfully steered efforts to develop our Sector Sales initiatives and advanced new product innovation to drive improved speed and quality of service for clients. In addition, Mr. Rogers introduced significant improvements in business operations through key personnel changes and strengthened State Street’s risk profile through the build-out of market surveillance and Volcker infrastructure.

Mr. O’Hanley. Mr. O’Hanley led State Street Global Advisors in 2016 in achieving several key objectives. Notably, he coordinated the successful acquisition of GE Asset Management, which extends our core investment management capabilities, including in the high-growth outsourced chief investment officer markets. He also actively managed significant talent improvements through acquisition, internal mobility and outside hiring. In addition, he improved our operating environment and risk management profile, making significant contributions to resolution planning efforts. Mr. O’Hanley was appointed Vice Chairman, effective January 1, 2017.

Mr. Phalen. In 2016, Mr. Phalen oversaw major regulatory initiatives throughout State Street, including resolution planning and anti-money laundering remediation efforts, resulting in improvements in our overall control structure and risk posture. In May 2016, Mr. Phalen informed us that he planned to retire after almost 25 years at State Street. Through the second half of 2016, Mr. Phalen successfully transitioned responsibilities related to regulatory initiatives to State Street’s Chief Administrative Officer, Karen Keenan, prior to his retirement on January 20, 2017.

Additional Factors and Individual Compensation Decisions

 

LOGO

In addition to the corporate and individual performance factors summarized above, the Committee also took into account market compensation competitiveness in finalizing its compensation decisions.

 

34    STATE STREET CORPORATION

Corporate Performance Individual Performance Amount and Form of Incentive Compensation


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The Compensation Committee’s 2016 total compensation decisions for each of the NEOs relative to their targets are presented in the table below.

 

       Annual Incentive        Long-Term Incentive  

  Named Executive

  Officer

      


    Reflects performance specific to the
relevant year and designed to vary
from target year to year


    All NEOs paid below target

 
 
 

 

      


    Designed to promote long-term perform
ance and leadership behaviors and
expected to be consistent year to year


    All NEOs paid at target


 
 

 

     Target        Actual        Target        Actual  

 

  Joseph L. Hooley

 

    

 

$

 

 

3,000,000

 

 

 

 

    

 

$

 

 

2,500,000

 

 

 

 

    

 

$

 

 

10,000,000

 

 

 

 

    

 

$

 

 

10,000,000

 

 

 

 

 

  Michael W. Bell

 

    

 

 

 

 

1,950,000

 

 

 

 

    

 

 

 

 

1,115,000

 

 

 

 

    

 

 

 

 

4,000,000

 

 

 

 

    

 

 

 

 

4,000,000

 

 

 

 

 

  Michael F. Rogers

 

    

 

 

 

 

3,000,000

 

 

 

 

    

 

 

 

 

2,270,000

 

 

 

 

    

 

 

 

 

6,091,290

 

 

 

 

    

 

 

 

 

6,091,290

 

 

 

 

 

  Ronald P. O’Hanley

 

    

 

 

 

 

2,900,000

 

 

 

 

    

 

 

 

 

2,570,000

 

 

 

 

    

 

 

 

 

5,300,000

 

 

 

 

    

 

 

 

 

5,300,000

 

 

 

 

 

  James S. Phalen

 

    

 

 

 

 

2,800,000

 

 

 

 

    

 

 

 

 

1,600,000

 

 

 

 

    

 

 

 

 

5,200,000

 

 

 

 

    

 

 

 

 

5,200,000

 

 

 

 

The Compensation Committee’s 2016 total compensation decisions for each of the NEOs are presented in the table below. The table below is intended to help shareholders understand the process and philosophy the Committee used in calculating NEO compensation for 2016 performance. Note (1) to the table below describes the relationship between the amounts reported in the table below and those amounts reported in the Summary Compensation Table (as required by SEC rules) and related tables beginning on page 43. While the table below summarizes how the Committee views compensation, it is not a substitute for the tables and disclosures required by the SEC’s rules.

 

  Named Executive

  Officer

  Year     Annual Base
Salary
    Annual Incentive
Awards
    Long-Term Incentive
Awards
    Total
Compensation
 
     

 

Non-Deferred
Cash

    DVAs    

 

Performance-
Based RSUs

    DSAs    

 

  Joseph L. Hooley

 

 

 

 

 

 

2016

 

 

 

 

 

 

$

 

 

1,000,000

 

 

 

 

 

 

$

 

 

625,000

 

 

 

 

 

 

$

 

 

1,875,000

 

 

 

 

 

 

$

 

 

6,000,000

 

 

 

 

 

 

$

 

 

4,000,000

 

 

 

 

 

 

$

 

 

13,500,000  

 

 

 

 

 

 

 

 

 

2015

 

 

 

 

 

 

 

 

 

1,000,000

 

 

 

 

 

 

 

 

 

0

 

 

 

 

 

 

 

 

 

0

 

 

 

 

 

 

 

 

 

5,400,000

 

 

 

 

 

 

 

 

 

3,600,000

 

 

 

 

 

 

 

 

 

10,000,000  

 

 

 

 

   

 

 

 

 

2014

 

 

 

 

 

 

 

 

 

1,000,000

 

 

 

 

 

 

 

 

 

1,250,000

 

 

 

 

 

 

 

 

 

1,250,000

 

 

 

 

 

 

 

 

 

6,000,000

 

 

 

 

 

 

 

 

 

4,000,000

 

 

 

 

 

 

 

 

 

13,500,000  

 

 

 

 

  Michael W. Bell

 

 

 

 

 

2016

 

 

 

 

 

 

 

 

 

800,000

 

 

 

 

 

 

 

 

 

255,750

 

 

 

 

 

 

 

 

 

859,250

 

 

 

 

 

 

 

 

 

2,400,000

 

 

 

 

 

 

 

 

 

1,600,000

 

 

 

 

 

 

 

 

 

5,915,000  

 

 

 

 

 

 

 

 

 

2015

 

 

 

 

 

 

 

 

 

800,000

 

 

 

 

 

 

 

 

 

210,000

 

 

 

 

 

 

 

 

 

390,000

 

 

 

 

 

 

 

 

 

2,160,000

 

 

 

 

 

 

 

 

 

1,440,000

 

 

 

 

 

 

 

 

 

5,000,000  

 

 

 

 

   

 

 

 

 

2014

 

 

 

 

 

 

 

 

 

800,000

 

 

 

 

 

 

 

 

 

546,750

 

 

 

 

 

 

 

 

 

920,750

 

 

 

 

 

 

 

 

 

2,400,000

 

 

 

 

 

 

 

 

 

1,600,000

 

 

 

 

 

 

 

 

 

6,267,500  

 

 

 

 

  Michael F. Rogers

 

 

 

 

 

2016

 

 

 

 

 

 

 

 

 

908,710

 

 

 

 

 

 

 

 

 

418,065

 

 

 

 

 

 

 

 

 

1,851,935

 

 

 

 

 

 

 

 

 

3,654,774

 

 

 

 

 

 

 

 

 

2,436,516

 

 

 

 

 

 

 

 

 

9,270,000  

 

 

 

 

 

 

 

 

 

2015

 

 

 

 

 

 

 

 

 

908,710

 

 

 

 

 

 

 

 

 

329,564

 

 

 

 

 

 

 

 

 

170,436

 

 

 

 

 

 

 

 

 

3,654,774

 

 

 

 

 

 

 

 

 

2,436,516

 

 

 

 

 

 

 

 

 

7,500,000  

 

 

 

 

   

 

 

 

 

2014

 

 

 

 

 

 

 

 

 

908,710

 

 

 

 

 

 

 

 

 

742,500

 

 

 

 

 

 

 

 

 

1,482,500

 

 

 

 

 

 

 

 

 

3,120,000

 

 

 

 

 

 

 

 

 

2,080,000

 

 

 

 

 

 

 

 

 

8,333,710  

 

 

 

 

  Ronald P. O’Hanley

 

 

 

 

 

2016

 

 

 

 

 

 

 

 

 

800,000

 

 

 

 

 

 

 

 

 

393,500

 

 

 

 

 

 

 

 

 

2,176,500

 

 

 

 

 

 

 

 

 

3,180,000

 

 

 

 

 

 

 

 

 

2,120,000

 

 

 

 

 

 

 

 

 

8,670,000  

 

 

 

 

  James S. Phalen

 

 

 

 

 

2016

 

 

 

 

 

 

 

 

 

850,000

 

 

 

 

 

 

 

 

 

340,000

 

 

 

 

 

 

 

 

 

1,260,000

 

 

 

 

 

 

 

 

 

3,120,000

 

 

 

 

 

 

 

 

 

2,080,000

 

 

 

 

 

 

 

 

 

7,650,000  

 

 

 

 

 

 

 

 

 

2015

 

 

 

 

 

 

 

 

 

850,000

 

 

 

 

 

 

 

 

 

284,000

 

 

 

 

 

 

 

 

 

716,000

 

 

 

 

 

 

 

 

 

2,808,000

 

 

 

 

 

 

 

 

 

1,872,000

 

 

 

 

 

 

 

 

 

6,530,000  

 

 

 

 

   

 

 

 

 

2014

 

 

 

 

 

 

 

 

 

850,000

 

 

 

 

 

 

 

 

 

666,000

 

 

 

 

 

 

 

 

 

794,000

 

 

 

 

 

 

 

 

 

3,120,000

 

 

 

 

 

 

 

 

 

2,080,000

 

 

 

 

 

 

 

 

 

7,510,000  

 

 

 

 

 

(1)

The compensation described in the table above, which summarizes how the Committee evaluates total compensation, differs from the compensation described in the Summary Compensation Table beginning on page 43 in the following respects:

 

Annual Base Salary. The table above reflects the year-end annual base salary rate applicable for each NEO. Column (c) in the Summary Compensation Table presents the amount of base salary actually earned by each NEO during the relevant year.

 

DVAs. The table above reflects the value of deferred cash compensation designated by the Committee and does not include the adjustment factor intended to provide the notional investment return of a money market instrument during the deferral period. The DVA amounts included in the Summary Compensation Table are increased to reflect this adjustment factor, which is more fully described in note (3) to the Summary Compensation Table.

 

Long-Term Incentive Awards. The Compensation Committee grants long-term incentive equity awards based on the prior year’s performance. In the table above, equity awards are shown for the year of performance (e.g., equity granted in 2017 for 2016 performance is shown as 2016 compensation). Under applicable SEC rules, the Summary Compensation Table presents equity awards in the year in which they are made (e.g., equity granted in 2017 for 2016 performance will be shown as 2017 compensation). In addition, the Summary Compensation Table includes, to the extent awarded, defined contribution deferred share awards under our Executive Supplemental Retirement Plan for 2014. None of Messrs. Hooley, Bell, Rogers, O’Hanley, or Phalen were granted defined contribution deferred share awards under that

 

STATE STREET CORPORATION    35


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plan in 2015 or 2016. Consistent with the discussion under the heading “Total Compensation Approach,” the Committee does not view these retirement benefits conceptually as a component of total compensation.

 

Total Compensation. The amounts disclosed above differ from the amounts reported in column (j) of the Summary Compensation Table as a result of the different methodologies discussed in the notes above. Additionally, this presentation excludes several items from the Summary Compensation Table which State Street does not view as primary components of regular annual compensation, such as Change in Pension Value (which is due solely to actuarial computations).

Other Elements of Our Process

Roles of the Committee and the CEO

The Compensation Committee has direct responsibility for executive officer compensation plans, policies and programs at State Street and for establishing the overall compensation philosophy for executive officers, other than the Chief Executive Officer. The Committee performs those same functions for the Chief Executive Officer in consultation with the other independent directors. Accordingly, the Committee’s compensation decisions for the Chief Executive Officer include input from the other independent directors of the Board, whether or not specifically referenced in this CD&A. In making compensation decisions for the other NEOs, the Committee considers the recommendations of the Chief Executive Officer and input from the other independent directors.

The Committee met seven times from July 2016 through March 2017 regarding 2016 NEO compensation and evaluated a broad range of corporate performance factors, individual performance updates, market information and regulatory updates, as well as its pay-for-performance practices and the results of our annual shareholder meeting, including “say-on-pay” results. The Committee also considered evolving trends, practices, guidance and requirements in the design, regulation, risk-alignment and governance of compensation matters in the U.S. and other jurisdictions, including Europe and Asia. During these meetings, the Committee received regular updates, including from the Committee’s independent compensation consultant and independent external legal counsel, on these and other matters, particularly with respect to the financial services industry.

Peer Group and Benchmarking

Among the many factors used in determining executive compensation, we benchmark our total compensation against a peer group of other major financial services companies. The Compensation Committee did not treat peer group data as definitive when determining 2016 executive compensation. Rather, it referenced peer group compensation data as well as performance data, but formed its own perspective on compensation for our NEOs based on a subjective evaluation of many factors.

We consider few firms to be true comparators for the specific scope of our primary business activities. We include our direct competitors as well as other firms with which we compete in some aspects of our businesses and for executive talent. The group varies in firm size and business lines and the nature of applicable regulation, including status (like State Street) as a systemically important financial institution. The peers were selected based on a screening methodology that accounts for our industry sector, size, specific business model and applicable regulatory frameworks. Our generally applicable peer group, periodically reviewed and approved by the Committee, consists of the following 12 firms:

 

 

Ameriprise Financial, Inc.

 

  

 

JPMorgan Chase & Co.

 

 

The Bank of New York Mellon Corporation

 

  

 

Morgan Stanley

 

 

BlackRock, Inc.

 

  

 

Northern Trust Corporation

 

 

Capital One Financial Corporation

 

  

 

The PNC Financial Services Group, Inc.

 

 

Franklin Resources, Inc.

 

  

 

U.S. Bancorp

 

 

The Goldman Sachs Group, Inc.

 

  

 

Wells Fargo & Company

 

A subset of the above firms, consisting of Bank of New York Mellon, Capital One, JPMorgan, Northern Trust, PNC Financial Services, U.S. Bancorp and Wells Fargo, is also used for Mr. Hooley. The Committee believes this subset contains the comparator companies most appropriate for evaluating compensation of the Chief Executive Officer position. For Mr. O’Hanley, the Committee uses a separate peer group of 11 leading investment management firms.(1) The Committee views this separate peer group as a more relevant comparator group for Mr. O’Hanley, given his position as the Chief Executive Officer of State Street Global Advisors, our investment management business unit.

In 2016, State Street worked with Meridian Compensation Partners, the Committee’s independent compensation consultant, to compile market compensation data from the applicable peer group for benchmarking purposes. The market compensation data

 

(1)

This peer group consists of the following: American Century Investments, Bank of New York Mellon, Columbia Management, Goldman Sachs Asset Management, MFS Investment Management, Morgan Stanley Investment Management, New York Life Investment Management, Northern Trust Global Investments, Oppenheimer Funds, Principal Global Investors and Prudential Investment Management.

 

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comprised publicly disclosed compensation and multiple compensation surveys provided by other compensation data providers. In evaluating this data, the Committee considers total compensation to consist of base salary and incentive compensation. In addition to this peer group data, the Committee received regular updates during 2016 and the first quarter of 2017 regarding identified market trends and compensation actions at major financial services institutions.

The Committee recognizes that the peer group companies vary in size and business lines. In addition, the nature of the roles of executives varies by firm. Therefore, as noted above, the Committee referenced peer group data, but formed its own perspectives on appropriate compensation levels for our NEOs on a subjective evaluation of many factors.

Compensation Consultant

The Compensation Committee directly retains Meridian Compensation Partners to provide compensation consulting to the Committee. Meridian regularly participated in meetings and executive sessions of the Committee. Meridian did not provide any other services to State Street during 2016.

The Committee believes the consultant’s primary representatives advising the Committee must be independent of management and the Committee for the consultant to provide appropriate advice on compensation matters. Therefore, the Committee adopted a policy requiring an annual assessment of compensation consultant independence based on the requirements of the NYSE. In December 2016, the Committee reviewed the independence of Meridian’s primary representatives under the policy. Following its review, the Committee determined the primary representatives of Meridian to be independent and that no conflicts of interest were raised by the services of Meridian or its primary representatives.

The Committee reviews data prepared by Willis Towers Watson PLC and McLagan Partners as part of its consideration of compensation matters. Each of these firms, engaged by our Global Human Resources group based on its specialized expertise in the financial services industry, has provided other services to State Street in the past and may do so in the future.

Other Elements of Compensation

Additional elements of our compensation program for our NEOs include the following.

Recourse Mechanisms

The incentive compensation awards to our NEOs are subject to recourse mechanisms, including clawback, forfeiture and ex ante adjustment, as described below. These awards are also subject to any compensation recovery or similar requirements under applicable law and implementing regulations and related State Street policies. This approach is intended to comply with applicable banking regulations and regulatory guidance on incentive compensation and will be interpreted and administered accordingly. The Compensation Committee anticipates reviewing the terms of these recourse mechanisms in light of evolving market practices and regulatory guidance and may adjust its approach for future incentive compensation awards.

Clawback. After vesting (if applicable) and delivery to the executive, all amounts delivered to our NEOs under the 2016, 2015 and 2014 incentive compensation awards, including cash incentive, performance-based RSUs, DSAs and DVAs, contain clawback provisions providing for the repayment of those amounts, in whole or in part, upon the occurrence of specified events. The Compensation Committee, in its discretion, determines whether clawback is appropriate, making that determination within four years (in the case of performance-based RSUs) or three years (in the case of all other forms of incentive compensation) of the date of the grant of the award. The events for which clawback may occur include where the executive engaged in fraud or willful misconduct that directly resulted in either:

 

 

financial or reputational harm that is material to State Street and resulted in termination of the executive’s employment for cause, or

 

 

a material financial restatement by State Street contained in a filing with the SEC

Forfeiture. Before vesting and delivery to the executive, all deferred incentive compensation awards to our NEOs, including performance-based RSUs, DSAs and DVAs, contain provisions permitting the reduction or cancellation of the amount to be vested and delivered under the award, in whole or in part, upon the occurrence of specified events. The Compensation Committee, in its discretion, determines whether forfeiture is appropriate. The events for which forfeiture may occur include:

 

 

if the executive’s actions exposed State Street to inappropriate risk or risks and such exposure has resulted or could reasonably be expected to result in a material loss or losses that are or would be substantial in relation to State Street’s or a relevant business unit’s revenue, capital and overall risk tolerance

 

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if the executive engaged in fraud, gross negligence or any misconduct that was materially detrimental to the interests or business reputation of State Street or any of its businesses

 

 

if, as a result of a material financial restatement or miscalculation or inaccuracy in the determination of performance metrics, financial results or other criteria, the executive would have received a smaller or no award

Ex Ante Adjustment. Before planned awards are made to the executive for a given compensation year, all incentive compensation for our NEOs, including both deferred incentive compensation awards and the non-deferred cash incentive, is subject to downward adjustment, in whole or in part, upon the occurrence of specified events. The Compensation Committee, in its discretion, determines whether ex ante adjustment is appropriate. The events for which ex ante adjustment may occur include:

 

 

if the executive’s actions exposed State Street to inappropriate risk or risks and such exposure resulted in a “Significantly Below Expectations” rating on any of the factors on State Street’s corporate multi-factor risk scorecard, which guides State Street’s risk assessment process

 

 

if the executive incurred significant or repeated compliance or risk-related violations of State Street’s policies

Retirement Benefits

Our NEOs are eligible to participate in our 401(k) defined contribution retirement plan available to our employees generally. The plan currently includes a matching employer contribution of 5%. We also maintain a frozen qualified defined benefit pension plan for certain U.S. employees that determines benefits based on an account balance that is increased annually by interest credits. Each of our NEOs (other than Messrs. Bell and O’Hanley) participates in this plan; no additional annual pay credits, however, are provided to their accounts.

Because pension benefits under our qualified defined benefit plan are limited by Internal Revenue Code restrictions, we maintain two supplemental pension programs, both of which are frozen. One is designed to make up for limits imposed by the qualified plan or by the Internal Revenue Code on qualified-plan benefits, and a second was originally designed to provide pension benefits equal to a specified percentage of compensation. The latter plan now provides for two separate benefit components: (1) a frozen traditional defined benefit component, in which Messrs. Hooley and Phalen (and none of our other NEOs) participate; but for which no further contributions are being made, and (2) a defined contribution component, which was frozen in January 2017.

In January 2017, the Compensation Committee amended this defined contribution plan to eliminate the annual defined contribution credits for the 2017 compensation year and for all subsequent compensation years. The supplemental pension program noted above was initially designed to provide executive officers at the executive vice president level or above with competitive retirement benefits and encourage their continued employment. The traditional defined benefit component was frozen effective January 1, 2008. The Committee froze the defined contribution component in three of the past five years. The Committee decided to permanently freeze this component following a review of market analyses of executive supplemental retirement plans. These analyses indicated that use of supplemental retirement plans has continued to decline in the market due to cost saving initiatives and the broader movement from defined benefit to defined contribution plans.

These plans are described in further detail below under the heading “Pension Benefits at Fiscal Year-End.”

Deferred Compensation

We maintain a nonqualified deferred compensation plan that allows NEOs, other executive officers and others to defer both base salary and the portion of annual incentive bonuses payable in immediately available cash. Participants receive a return based on one or more notional investment options selected by the participant. Currently, the investment options include a money market fund, three State Street index funds, a State Street common stock fund and six non-U.S. notional funds. The nonqualified deferred compensation plan supplements deferrals made under our tax-qualified 401(k) plan. We provide these nonqualified deferred compensation benefits because, in our experience, most companies of our size provide a similar benefit to their senior employees. This plan is described below under the heading “2016 Nonqualified Deferred Compensation.”

Perquisites

We provide a modest level of perquisites, such as financial planning, annual physicals and personal liability coverage, to our NEOs. In addition, we provide a driver and other security benefits to Mr. Hooley. We offer parking benefits to our other NEOs. We provide these benefits because we believe they are appropriate in scope and amount to promote the effectiveness of our senior executives, allowing them greater opportunity to focus their attention on our business operations and activities. We do not provide a tax gross-up for the income attributable to any perquisite for our NEOs.

 

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Change-of-Control Agreements

Under a long-standing program, we have change-of-control agreements in place with each of our NEOs. We provide these agreements because we believe providing some protection in the event of a change of control is necessary to attract and retain high quality executives and to help address the possible inherent distractions during the period leading up to a possible change of control.

Our change-of-control arrangements are further described below under the heading “Potential Payments Upon Termination or Change of Control—Change of Control.”

Executive Equity Ownership Guidelines, Practices and Policies

State Street believes executive stock ownership is key to aligning our executives’ interests with those of our shareholders. It also incents our executives to meet our financial, strategic and risk management objectives. Therefore, we implemented the following practices, policies and guidelines.

Stock Ownership Guidelines. Our stock ownership guidelines apply to all members of our Management Committee, including the NEOs. These guidelines require executives to own shares of common stock with a value equal to the multiple of the relevant executive’s annual base salary shown below. Guideline levels are phased in over a period of five years, with the first year starting on the first January 1st after the person becomes an executive officer. The executive is expected to attain the ownership level ratably over five years and is deemed to satisfy the guideline if that ratable ownership level is met.

Our Stock Ownership Guidelines also include a holding requirement. Under this requirement, during the 5 year phase-in period, each executive must hold 50% of the net shares received from a vesting event until the ownership requirement is met. Following the 5 year phase-in period, if the ownership guideline is not met, a 100% holding requirement applies until the ownership guideline is satisfied. As of March 1, 2017, the holding requirement does not apply to any of the NEOs as each exceeds their full (not ratable) ownership guideline.

 

   Name

 

  

Common Stock Ownership
Guideline Multiple of
Annual Base Salary

 

  

Executive Exceeds  
Ownership  
Guideline(1)  

 

 

  Joseph L. Hooley

 

  

 

7

 

  

 

 

 

  Michael W. Bell

 

  

 

5

 

  

 

 

 

  Michael F. Rogers

 

  

 

5

 

  

 

 

 

  Ronald P. O’Hanley

 

  

 

5

 

  

 

 

 

  James S. Phalen

 

  

 

5

 

  

 

 

 

(1)

All of our NEOs exceeded the ownership guideline   as of March 1, 2017, other than Mr. Phalen, who retired on January 20, 2017 and exceeded the ownership guideline as of that date.

The level of ownership is calculated on the same date used for the beneficial ownership table in our annual meeting proxy statement and by reference to the closing price of our common stock on the New York Stock Exchange on that date. Ownership includes unvested shares, DSAs and earned performance-based RSUs (on an after-tax basis), including shares held under our 401(k) retirement plan, but excludes stock options, stock appreciation rights and unearned performance-based RSUs. This calculation differs from the calculation of shares under applicable SEC rules for purposes of the beneficial ownership table on page 43.

As noted in the table above, the stock ownership of each NEO exceeded the expected level of ownership under these guidelines.

Securities Trading Policy; No Hedging or Speculative Trading; Rule 10b5-1 Plans. State Street has a Securities Trading Policy that contains specific provisions and trading restrictions. The policy is designed primarily to assist our executive officers, including our NEOs, and other designated employees with access to sensitive information, in their compliance with U.S. federal securities laws in connection with their trading in State Street securities. The policy contains prohibitions against selling State Street securities short, engaging in hedging transactions in State Street securities and engaging in speculative trading in State Street securities. The policy permits individuals, including our executive officers, to enter into trading plans designed to comply with Rule 10b5-1 under the Exchange Act of 1934. Rule 10b5-1 allows corporate executives to prearrange sales of their company’s securities in a manner designed to avoid concerns about initiating stock transactions while in possession of material non-public information. Our NEOs and other executive officers may, from time to time, adopt trading plans under Rule 10b5-1 and effect

 

STATE STREET CORPORATION    39


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transactions in our securities under those plans on a predetermined basis. The Securities Trading Policy is in addition to the generally applicable requirements in the State Street Standard of Conduct, applicable to all employees, that their trading activities must be in compliance with applicable law and that they may not trade on the basis of material non-public information.

Equity Grant Guidelines. The Compensation Committee adopted Equity Grant Guidelines, as described below:

 

 

Annual Equity Award Grants. Annual grants of equity awards to our NEOs, other executive officers and other employees are typically made by the Committee on the date of a scheduled meeting of the Committee or the Board of Directors to be held in February or March of each year following the public release of financial results for the prior fiscal year. Pursuant to authority delegated by the Board, and subject to any limitations that the Board or the Committee may establish, another committee of the Board (which may consist of a single member) may make annual grants to persons other than executive officers on the date of the scheduled meeting in February or March

 

 

Other Equity Award Grants. Grants of equity awards to NEOs and other executive officers in connection with new hirings, promotions, special recognition, retention or other special circumstances are made by the Committee. Awards to other individuals may be made either by the Committee or, subject to any limitations that the Board or the Committee may establish, a committee of the Board composed of (1) the Chairman of the Board, (2) the Chief Executive Officer, (3) the Committee Chair or (4) the Committee Chair along with any other member of the Committee. This type of award may be granted on the date of a scheduled meeting of the Committee, a scheduled meeting of the Board or the last business day of a calendar month

 

 

The exercise price for all stock options and stock appreciation rights will be the NYSE closing price of State Street’s common stock on the date of grant

Except for the setting of the February or March meeting to occur after our public release of annual earnings, there was no program, plan or practice with respect to 2016 of timing equity awards in coordination with the release of material non-public information.

Tax Deductibility of Executive Compensation

Section 162(m) of the U.S. Internal Revenue Code, or Section 162(m), generally limits to $1 million the U.S. federal income tax deductibility of compensation paid in one year to any one of a group of specified employees, including our NEOs (other than our Chief Financial Officer). Performance-based compensation is not subject to the limits on deductibility of Section 162(m), provided such compensation meets specified requirements, including shareholder approval of material terms of compensation.

The Compensation Committee considers tax deductibility in making compensation decisions, to the extent deductibility is reasonably practicable and consistent with our other compensation objectives. Our Senior Executive Annual Incentive Plan, or SEAIP, was approved by our shareholders at the 2016 annual meeting, consistent with our historical practice for approval of this plan at least every five years. Similarly, our 2006 Equity Incentive Plan (as amended), or 2006 Equity Incentive Plan, has previously been approved by our shareholders. In addition, all functions performed by the Compensation Committee related to the qualification of performance-based compensation for exemptions under Section 162(m) for the 2016 compensation year were performed by the subcommittee described in this proxy statement under the heading “Corporate Governance at State Street—Committees of the Board of Directors—Executive Compensation Committee.” The Compensation Committee believes, however, that shareholder interests are best served by not restricting its discretion and flexibility in structuring compensation programs, even though such programs may result in non-deductible compensation expenses.

Compensation Committee Report

The Compensation Committee furnishes the following report:

The Committee has reviewed and discussed the Compensation Discussion and Analysis with State Street management. Based on this review and discussion, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

Submitted by,

Richard P. Sergel, Chair

Kennett F. Burnes

Amelia C. Fawcett

Linda A. Hill

Gregory L. Summe

 

40    STATE STREET CORPORATION


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Alignment of Incentive Compensation and Risk

We align incentive compensation with appropriate risk management principles, such as providing incentives that do not encourage unnecessary or excessive risk-taking and establishing additional process controls and oversight where appropriate. We utilize broad and integrated processes to maintain this alignment, including to:

 

 

conduct risk-based reviews of incentive plan design

 

 

identify individuals whose activities may expose State Street to material amounts of risk

 

 

adjust compensation for risk

 

 

implement specific Board committee review of selected control function compensation (e.g., Board-level Examining and Audit Committee review of Chief Compliance Officer and Compliance Department compensation)

 

LOGO

 

STATE STREET CORPORATION    41

Risk-Based Review of Incentive Plan Design Incentive compensation arrangements are designed through consultation with the relevant business units, including a formalized requirement for review and input by risk management aligned to those business units A management committee (the Incentive Compensation Control Committee, or ICCC) comprising senior representatives of our risk management and internal control functions assesses all incentive compensation arrangements to promote their consistency with the safety and soundness of State Street and with applicable regulatory guidance and regulations Both the Compensation Committee and a management committee focusing on compliance and ethics receive a report containing the ICCC’s risk assessment of the effectiveness of the design and operation of State Street’s incentive compensation system in providing risk-taking incentives that are consistent with the organization’s safety and soundness The Compensation Committee interacts closely with our Risk Committee, whose Chair is also a member of the Compensation Committee. The Compensation Committee also annually meets with our Chief Risk Officer and our Chief Human Resources Officer to evaluate the incentive compensation plans for all State Street employees, including the NEOs, relative to risk management principles Identification of Material Risk-Takers Through a process led by our Enterprise Risk Management group, we identify the population of individuals whose activities may expose State Street to material amounts of risk (“material risk-takers”) Our internal compensation arrangements with these employees provide for “risk adjustments” if required. See “Risk-Based Adjustments to Compensation for Material Risk Takers” below Risk-Based Adjustments to Compensation for Material Risk Takers Incentive compensation awarded to material risk-takers is subject to risk-based adjustments both before and after the compensation is awarded (ex ante and ex post adjustments, respectively) Ex ante adjustments are guided by a standardized risk management assessment of firm-wide risk developed by our Enterprise Risk Management group and approved by the Risk Committee of our Board of Directors Ex post adjustments reduce or cancel the amount remaining to be paid under the relevant award if the Committee determines that the actions of the material risk-taker exposed State Street to inappropriate risk and that exposure has resulted or could reasonably be expected to result in a material loss or losses that are or would be substantial in relation to the revenue, capital and overall risk tolerance of State Street For members of our Management Committee, including each NEO, the risk-based forfeiture provision is in addition to our misconduct and financial restatement-related forfeiture provision The 2016 and 2015 incentive compensation for each member of our Management Committee, including each NEO, is also subject to clawback by State Street under specified circumstances. See above under the heading “Other Elements of Compensation—Recourse Mechanisms.” Risk-Based Adjustments to Compensation for All Employees Results of business unit- and corporate function-level scorecard-based risk assessments are used as an input to allocate bonus pools to each business unit and corporate function as well as further sub-allocations. Individual accountability is also assessed as appropriate for all employees Poor risk performance, including significant or repeated violations of policies administered by State Street’s Corporate Compliance Division may result in ex ante adjustments to employee incentive compensation as part of a progressive discipline structure to hold individual employees accountable for risk performance A general forfeiture provision applies to all employees where employment is terminated for gross misconduct and applies to the entire portion of deferred compensation awards made to deferred compensation-eligible employees, including performance-based RSUs, DSAs and DVAs. Board Committee Review of Selected Control Function Compensation Committees of our Board of Directors with oversight of an area managed by each control function review the performance assessment and individual compensation recommendations for the heads of the relevant control function, as well as an overview of the compensation for the entire control function Results of these Board-level committee reviews are reported to the Compensation Committee as an input into final compensation recommendations This process provides the relevant committee with additional perspective on the performance of the relevant control function and whether that function is being allocated appropriate resources and compensation


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LOGO

 

42    STATE STREET CORPORATION

Risk-Based Adjustments to Compensation for All Employees Results of business unit- and corporate function-level scorecard-based risk assessments are used as an input to allocate bonus pools to each business unit and corporate function as well as further sub-allocations. Individual accountability is also assessed as appropriate for all employees Poor risk performance, including significant or repeated violations of policies administered by State Street’s Corporate Compliance Division may result in ex ante adjustments to employee incentive compensation as part of a progressive discipline structure to hold individual employees accountable for risk performance A general forfeiture provision applies to all employees where employment is terminated for gross misconduct and applies to the entire portion of deferred compensation awards made to deferred compensation-eligible employees, including performance-based RSUs, DSAs and DVAs. Board Committee Review of Selected Control Function Compensation Committees of our Board of Directors with oversight of an area managed by each control function review the performance assessment and individual compensation recommendations for the heads of the relevant control function, as well as an overview of the compensation for the entire control function Results of these Board-level committee reviews are reported to the Compensation Committee as an input into final compensation recommendations This process provides the relevant committee with additional perspective on the performance of the relevant control function and whether that function is being allocated appropriate resources and compensation


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Summary Compensation Table

 

  Name and Principal

  Position

  (a)

 

 

Year
(b)

 

   

Salary(1)

($)

(c)

 

   

Stock
Awards(2)

($)

(e)

 

   

Non-Equity
Incentive Plan
Compensation(3)

($)

(g)

 

   

Change in
Pension

Value and
Nonqualified
Deferred
Compensation
Earnings(4)

($)

(h)

 

   

All Other
Compensation(5)

($)

(i)

 

   

Total

($)

(j)

 

         

Total without
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings*

($)

 

 

 

  Joseph L. Hooley

 

 

 

 

2016

 

 

 

 

 

 

$  980,769

 

 

 

 

 

 

$  8,999,997

 

 

 

 

 

 

$2,596,750

 

 

 

 

 

 

$2,014,620

 

 

 

 

 

 

$  99,705

 

 

 

 

 

 

$14,691,841

 

 

   

 

 

 

$12,677,221  

 

 

  Chairman and

  Chief Executive Officer

 

   

 

2015

2014

 

 

 

 

   

 

  1,038,462

  1,000,000

 

 

 

 

   

 

  10,200,000

  10,199,957

 

 

 

 

   

 

           —  

  2,566,750

 

 

 

 

   

 

           —  

  4,765,745

 

 

 

 

   

 

  103,025

  309,744

 

 

 

 

   

 

  11,341,487

  18,842,196

 

 

 

 

     

 

  11,341,487  

  14,076,451  

 

 

 

 

 

  Michael W. Bell

 

 

 

 

2016

 

 

 

 

 

 

     784,615

 

 

 

 

 

 

    3,599,969

 

 

 

 

 

 

  1,159,337

 

 

 

 

 

 

           —  

 

 

 

 

 

 

    34,498

 

 

 

 

 

 

    5,578,419

 

 

   

 

 

 

    5,578,419  

 

 

  Executive Vice President

  and Chief Financial Officer

 

   

 

2015

2014

 

 

 

 

   

 

     830,769

     800,000

 

 

 

 

   

 

    4,200,046

    5,100,078

 

 

 

 

   

 

     623,088

  1,516,668

 

 

 

 

   

 

           —  

           —  

 

 

 

 

   

 

    34,500

  438,782

 

 

 

 

   

 

    5,688,403

    7,855,528

 

 

 

 

     

 

    5,688,403  

    7,855,528  

 

 

 

 

 

  Michael F. Rogers

 

 

 

 

2016

 

 

 

 

 

 

     891,235

 

 

 

 

 

 

    6,091,278

 

 

 

 

 

 

  2,365,560

 

 

 

 

 

 

      20,479

 

 

 

 

 

 

    84,948

 

 

 

 

 

 

    9,453,500

 

 

   

 

 

 

    9,433,021  

 

 

  President and

  Chief Operating Officer

 

   

 

2015

2014

 

 

 

 

   

 

     943,660

     908,710

 

 

 

 

   

 

    5,399,993

    4,699,962

 

 

 

 

   

 

     510,090

  2,304,166

 

 

 

 

   

 

           —  

    121,029

 

 

 

 

   

 

    78,950

  299,611

 

 

 

 

   

 

    6,932,693

    8,333,478

 

 

 

 

     

 

    6,932,693  

    8,212,449  

 

 

 

 

 

  Ronald P. O’Hanley

 

 

 

 

2016

 

 

 

 

 

 

     784,615

 

 

 

 

 

 

    4,769,962

 

 

 

 

 

 

  2,682,307

 

 

 

 

 

 

           —  

 

 

 

 

 

 

    55,948

 

 

 

 

 

 

    8,292,832

 

 

   

 

 

 

    8,292,832  

 

 

  Vice Chairman and

  President and Chief

  Executive Officer, State

  Street Global Advisors

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

   

 

 

 

 

 

         

 

  James S. Phalen

 

 

 

 

2016

 

 

 

 

 

 

     833,654

 

 

 

 

 

 

    4,680,025

 

 

 

 

 

 

  1,665,016

 

 

 

 

 

 

     912,625

 

 

 

 

 

 

    94,298

 

 

 

 

 

 

    8,185,618

 

 

   

 

 

 

    7,272,993  

 

 

  Vice Chairman, Office

  of Regulatory Initiatives

 

   

 

2015

2014

 

 

 

 

   

 

     882,692

     823,077

 

 

 

 

   

 

    5,399,993

    4,699,962

 

 

 

 

   

 

  1,042,387

  1,502,400

 

 

 

 

   

 

           —  

  2,674,678

 

 

 

 

   

 

  109,212

  927,567

 

 

 

 

   

 

    7,434,284

  10,627,684

 

 

 

 

     

 

    7,434,284  

    7,953,006  

 

 

 

 

*

Amounts in this column show total compensation, as determined under applicable SEC rules and reported in column (j), minus the change in pension value reported in column (h). This is provided to illustrate the effect that the year-over-year change in pension value had on total compensation as determined under applicable SEC rules and to highlight the effect of the Compensation Committee’s decisions on total compensation year-over-year. Refer to the compensation table included in the Compensation Discussion and Analysis on page 35 for the Committee’s compensation decisions for each NEO. The amounts reported in the Total without Change in Pension Value and Nonqualified Deferred Compensation Earnings column differ from the amounts reported in the Total column (column (j)) and are not a substitute for total compensation calculated in accordance with SEC rules. The change in pension value is subject to external variables that are not related to State Street’s performance.

(1)  

Salary column displays actual 2016 compensation paid as salary. As of January 2016, all US employees transitioned to a one week in arrears pay schedule which resulted in one less pay period during 2016.

(2)  

2016 amounts represent the grant date fair value of awards granted to the NEOs during the indicated years for deferred share awards and performance-based restricted stock unit awards. Fair value for the awards for each year is computed in accordance with GAAP (FASB ASC 718), using the assumptions stated in note 18 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2016. Assuming the highest level of performance is achieved for the performance based-restricted stock units, the maximum value at grant date would be as follows: Mr. Hooley: $6,480,030; Mr. Bell: $2,591,972; Mr. Rogers: $4,385,756; Mr. O’Hanley: $3,434,395; and Mr. Phalen: $3,369,694. Please refer to the “Grants of Plan-Based Awards in 2016” table for the threshold, target and maximum levels for performance-based awards. There were no awards of stock options or stock appreciation rights to any of the named executive officers in the relevant years.

(3)  

Represents the immediate and deferred cash (granted in Deferred Value Awards, or DVAs) portions of incentive compensation. DVAs are units representing the notional investment return of a money market instrument. The number of units is increased to provide an estimated annual return over the deferral period: 2.50% for DVAs awarded in February 2017 for 2016, 2.75% for DVAs awarded in February 2016 for 2015 and 2.50% for DVAs awarded in February 2015 for 2014. The adjustment factor is 5.16% for DVAs awarded in February 2017 for 2016 and was 5.92% for DVAs awarded in February 2016 for 2015 and 5.34% for DVAs awarded in February 2015 for 2014. The amounts shown above include these adjustments. The cash portion of incentive compensation for 2016 was awarded as follows (including the DVA adjustment factor): Mr. Hooley: $625,000 immediate cash, $1,971,750 DVAs; Mr. Bell: $255,750 immediate cash, $903,587 DVAs; Mr. Rogers: $418,065 immediate cash, $1,947,495 DVAs; Mr. O’Hanley: $393,500 immediate cash, $2,288,807 DVAs; Mr. Phalen: $340,000 immediate cash, $1,325,016 DVAs.

(4)  

Because our deferred compensation plans do not provide above-market earnings, no earnings are included in this column. The amounts in this column represent the change in the actuarial present value of the accumulated benefits under our qualified and nonqualified defined benefit pension plans. The plans are frozen and none of the NEOs are receiving additional credits under the plans. Since Mr. Bell and Mr. O’Hanley were hired by State Street after January 1, 2008, they are not eligible to participate in the defined benefit pension plans. For 2016, the change in value presented in the Summary Compensation Table above reflects a year-over-year update to applicable actuarial calculation assumptions from December 31, 2015 to December 31, 2016, including a change to the mortality assumption related to observed mortality improvements and a decrease in the discount rate assumption for the State Street Retirement Plan (SSRP), the Management Supplemental Retirement Plan (MSRP) and the Executive Supplemental Retirement Plan (ESRP), as well as formula-driven changes due to the executives being older and closer to retirement. These updates resulted in increases in the actuarial present value of benefits as of December 31, 2016 for the current NEOs. The table below describes the change in pension value for 2016, as presented in the Summary Compensation Table above, highlighting the split between (i) the amount attributable to change in age, including ESRP benefit indexing, and (ii) the amount attributable to the actuarial present value effect of the decrease in market interest rates and mortality improvements. The change in pension value presented in the Summary Compensation Table above and in the following table represents actuarial calculations based upon assumptions on the relevant dates. The actuarial present value of the accumulated pension benefits calculated on future dates may increase or decrease, based upon assumptions applicable on those future dates and on formula-driven changes due to the executive’s age and ESRP benefit indexing. ESRP defined benefits are indexed three percent per year as a cost-of-living adjustment up to December 31, 2017. The aggregate change in pension value was positive for Messrs. Hooley and Rogers primarily due to the changes in the discount rate and lump sum conversion factor changes; the aggregate change for Mr. Phalen was positive due to the recognition of known timing and payment information. For more details, refer to footnote B of the “2016 Change in Pension Value” table below.

 

STATE STREET CORPORATION    43


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    2016 Change in Pension Value

 

  Name  

 

Due to Age and
Proximity to Retirement(A)

 

 

Due to Change in
Assumptions(B)

 

 

Total

 

  Joseph L. Hooley

 

   

 

 

 

 

$1,195,796

 

 

 

   

 

 

 

 

$   818,824

 

 

 

   

 

 

 

 

$2,014,620  

 

 

 

 

  Michael W. Bell

 

   

 

 

 

 

—  

 

 

 

   

 

 

 

 

—  

 

 

 

   

 

 

 

 

—    

 

 

 

 

  Michael F. Rogers

 

   

 

 

 

 

19,829

 

 

 

   

 

 

 

 

650

 

 

 

   

 

 

 

 

20,479  

 

 

 

 

  Ronald P. O’Hanley

 

   

 

 

 

 

—  

 

 

 

   

 

 

 

 

—  

 

 

 

   

 

 

 

 

—    

 

 

 

 

  James S. Phalen

 

   

 

 

 

 

(140,041

 

 

)

 

   

 

 

 

 

1,052,666

 

 

 

   

 

 

 

 

912,625  

 

 

 

 

  (A) 

The change in pension value due to an additional year of age was quantified by comparing (i) the December 31, 2015 present value of pension benefits with (ii) the present value of pension benefits calculated on December 31, 2016 holding the December 31, 2015 discount rate and mortality assumptions constant. Since the plans were frozen as of December 31, 2010 and there are no service accruals provided after that date, the increase in value reflects the effects on the present value calculation of pension benefits of the NEO having aged one additional year closer to normal retirement age (65).

  (B) 

The change in pension value due to changes in assumptions was quantified by comparing (i) the present value of pension benefits calculated as of December 31, 2016 based on the December 31, 2016 discount rates, form of payment, and mortality assumptions and (ii) subtracting from that the relevant amounts determined to be due to additional age, as set forth in footnote (A) above. The impact of reflecting the mortality improvements and the new form of payment assumption for the SSRP resulted in a negligible decrease of pension value. For Mr. Phalen, however, because he retired during January 2017, his actual payment amount and timing of payments is now known under the MSRP and ESRP. This computation was updated to reflect the known timing and payment information of these benefits. Separately, the timing of the Retirement Plan (State Street’s qualified defined benefit plan) payment is still unknown and therefore, no change in payment timing was reflected.

(5)

The following table describes the amounts set forth for 2016 in the “All Other Compensation” column:

 

  Name   Travel
Benefits(A)
($)
  Personal
and
Home
Security(B)
($)
  Executive
Health
Screening
($)
  International
Assignment(C)
($)
 

Financial
Planning/Tax

    Services    
($)

  Personal
Liability
Coverage
($)
 

Company
Contributions
to Defined
Contribution
Plans(D)

($)

  Other
Benefits(E)
($)
 

Total

($)

 

  Joseph L. Hooley

 

   

 

 

 

 

$37,984

 

 

 

   

 

 

 

 

$3,223

 

 

 

   

 

 

 

 

$2,443

 

 

 

   

 

 

 

 

$      —  

 

 

 

   

 

 

 

 

$      —  

 

 

 

   

 

 

 

 

$1,055

 

 

 

   

 

 

 

 

$25,000

 

 

 

   

 

 

 

 

$30,000

 

 

 

 

 

$99,705  

 

 

  Michael W. Bell

 

   

 

 

 

 

—  

 

 

 

   

 

 

 

 

—  

 

 

 

   

 

 

 

 

2,443

 

 

 

   

 

 

 

 

—  

 

 

 

   

 

 

 

 

6,000

 

 

 

   

 

 

 

 

1,055

 

 

 

   

 

 

 

 

25,000

 

 

 

   

 

 

 

 

—  

 

 

 

 

 

34,498  

 

 

  Michael F. Rogers

 

   

 

 

 

 

7,200

 

 

 

   

 

 

 

 

—  

 

 

 

   

 

 

 

 

2,443

 

 

 

   

 

 

 

 

—  

 

 

 

   

 

 

 

 

6,000

 

 

 

   

 

 

 

 

1,055

 

 

 

   

 

 

 

 

13,250

 

 

 

   

 

 

 

 

55,000

 

 

 

 

 

84,948  

 

 

  Ronald P. O’Hanley

 

   

 

 

 

 

7,200

 

 

 

   

 

 

 

 

—  

 

 

 

   

 

 

 

 

2,443

 

 

 

   

 

 

 

 

—  

 

 

 

   

 

 

 

 

12,000

 

 

 

   

 

 

 

 

1,055

 

 

 

   

 

 

 

 

13,250

 

 

 

   

 

 

 

 

20,000

 

 

 

 

 

55,948  

 

 

  James S. Phalen

 

   

 

 

 

 

7,200

 

 

 

   

 

 

 

 

—  

 

 

 

   

 

 

 

 

2,443

 

 

 

   

 

 

 

 

11,350

 

 

 

   

 

 

 

 

4,000

 

 

 

   

 

 

 

 

1,055

 

 

 

   

 

 

 

 

13,250

 

 

 

   

 

 

 

 

55,000

 

 

 

 

 

94,298  

 

 

  (A) 

Amount includes the cost of a car and driver (Mr. Hooley only). For the car and driver in 2016, the aggregate incremental cost ($30,784) was determined by allocating the total cost between personal and business use by mileage traveled. Amount also includes parking benefits for Messrs. Hooley, Rogers, O’Hanley and Phalen at $7,200.

  (B) 

Amount represents the cost of security at the residence of Mr. Hooley. This amount was determined by invoice amounts for alarm monitoring and maintenance.

  (C) 

The amounts shown include expatriate benefits received by Mr. Phalen in accordance with his international assignment. State Street provides expatriate employees with cost of living, housing and other relocation assistance as well as a tax equalization policy (designed to maintain a level of income tax equivalent to that applicable in the home country) applicable to all employees working on temporary international assignments in jurisdictions other than their home country. Although tax equalization is provided only with respect to the period of active employment on an expatriate assignment, State Street may make payments under the policy following the conclusion of the expatriate assignment. This could occur due to the timing of final tax filings and tax settlements that can be difficult to predict. As such, in connection with Mr. Phalen’s prior assignment to the United Kingdom as Head of International Operations for Investment Servicing and Investment Research and Trading, State Street made payments of $11,350.

  (D) 

Includes the following company contributions: (1) $13,250 to the Salary Savings Program (SSP) for each NEO and (2) $11,750 to the Management Supplemental Savings Plan (MSSP) for each of Messrs. Hooley and Bell.

  (E) 

Represents charitable donations and the matching gift program, excluding the $5,000 benefit available to all employees of State Street. In 2016, Executive Vice Presidents and above serving on non-profit boards were allowed to annually recommend a financial contribution from the State Street Foundation to the same non-profit up to $25,000. Messrs. Rogers and Phalen directed contributions of $25,000 in 2016. Matching charitable contributions were made in the name of Messrs. Hooley, Rogers, O’Hanley and Phalen to charities of their choice under State Street’s matching gift program ($30,000 for Messrs. Hooley, Rogers and Phalen; $20,000 for Mr. O’Hanley).

 

44    STATE STREET CORPORATION


Table of Contents

   Executive Compensation (continued)

 

   2017 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

Grants of Plan-Based Awards in 2016

 

  Name

  (a)

 

Award

(b)

        Estimated Possible Payouts
Under Non-Equity Incentive
Plan Awards(1)
    Estimated Future Payouts
Under Equity Incentive
Plan Awards
    All Other
Stock Awards:
Number of
Shares of
Stock or Units
(#)
    Grant Date
Fair Value
of Stock
and Option
Awards(2)
($)
 
   

Grant

Date

   

Threshold
($)

(c)

   

Target

($)

(d)

   

Maximum
($)

(e)

   

Threshold
(#)

(f)

   

Target
(#)

(g)

   

Maximum
(#)

(h)

     
                  (i)     (j)  

 

  Joseph L. Hooley

 

 

 

2016 Annual Incentive

 

         

 

 

 

 

$ —  

 

 

 

 

 

 

$

 

 

3,000,000

 

 

 

 

 

 

$

 

 

6,000,000

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

$

 

 

—    

 

 

 

 

 

 

Performance-Based RSU(3)

 

 

 

 

 

 

2/29/2016

 

 

 

 

 

 

 

 

 

   —  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

32,375

 

 

 

 

 

 

 

 

 

107,914

 

 

 

 

 

 

 

 

 

129,497

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

5,400,017  

 

 

 

 

   

 

Deferred Share Award(4)

 

 

 

 

 

 

2/29/2016

 

 

 

 

 

 

 

 

 

   —  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

70,810

 

 

 

 

 

 

 

 

 

3,599,980  

 

 

 

 

 

  Michael W. Bell

 

 

 

2016 Annual Incentive

 

   

 

 

 

 

   —  

 

 

 

 

 

 

 

 

 

1,950,000

 

 

 

 

 

 

 

 

 

3,900,000

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—    

 

 

 

 

 

 

Performance-Based RSU(3)

 

 

 

 

 

 

2/29/2016

 

 

 

 

 

 

 

 

 

   —  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

12,950

 

 

 

 

 

 

 

 

 

43,165

 

 

 

 

 

 

 

 

 

51,798

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

2,159,977  

 

 

 

 

   

 

Deferred Share Award(4)

 

 

 

 

 

 

2/29/2016

 

 

 

 

 

 

 

 

 

   —  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

28,324

 

 

 

 

 

 

 

 

 

1,439,992  

 

 

 

 

 

  Michael F. Rogers

 

 

 

2016 Annual Incentive

 

   

 

 

 

 

   —  

 

 

 

 

 

 

 

 

 

3,000,000

 

 

 

 

 

 

 

 

 

6,000,000

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—    

 

 

 

 

 

 

Performance-Based RSU(3)

 

 

 

 

 

 

2/29/2016

 

 

 

 

 

 

 

 

 

   —  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

21,912

 

 

 

 

 

 

 

 

 

73,037

 

 

 

 

 

 

 

 

 

87,645

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

3,654,771  

 

 

 

 

   

 

Deferred Share Award(4)

 

 

 

 

 

 

2/29/2016

 

 

 

 

 

 

 

 

 

   —  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

47,925

 

 

 

 

 

 

 

 

 

2,436,507  

 

 

 

 

 

  Ronald P. O’Hanley

 

 

 

2016 Annual Incentive

 

   

 

 

 

 

   —  

 

 

 

 

 

 

 

 

 

2,900,000

 

 

 

 

 

 

 

 

 

5,800,000

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—    

 

 

 

 

 

 

Performance-Based RSU(3)

 

 

 

 

 

 

2/29/2016

 

 

 

 

 

 

 

 

 

   —  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

17,159

 

 

 

 

 

 

 

 

 

57,194

 

 

 

 

 

 

 

 

 

68,633

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

2,861,988  

 

 

 

 

   

 

Deferred Share Award(4)

 

 

 

 

 

 

2/29/2016

 

 

 

 

 

 

 

 

 

   —  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

37,529

 

 

 

 

 

 

 

 

 

1,907,974  

 

 

 

 

 

  James S. Phalen

 

 

 

2016 Annual Incentive

 

   

 

 

 

 

   —  

 

 

 

 

 

 

 

 

 

2,800,000

 

 

 

 

 

 

 

 

 

5,600,000

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—    

 

 

 

 

 

 

Performance-Based RSU(3)

 

 

 

 

 

 

2/29/2016

 

 

 

 

 

 

 

 

 

   —  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

&n