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Section 1: PRE 14A (PRELIMINARY PROXY STATEMENT)

Preliminary Proxy Statement
Table of Contents

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:

 

       

 

 


Table of Contents
LOGO  

PRELIMINARY PROXY MATERIALS

SUBJECT TO COMPLETION

 

Joseph L. Hooley

Chairman and Chief Executive Officer

Kennett F. Burnes

Lead Director

April [], 2018

Dear Shareholder:

We cordially invite you to attend the 2018 annual meeting of shareholders of State Street Corporation. The meeting will be held at One Lincoln Street, 36th Floor, Boston, Massachusetts, on May 16, 2018, 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. 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.

In 2017, we celebrated our 225th anniversary—225 years since John Hancock signed into existence State Street’s earliest ancestor. Since that time, a lot has changed at State Street. We became the custodian for the first mutual fund, created the world’s first exchange traded fund, placed the Fearless Girl statue in the middle of New York’s financial district and expanded across countries and continents. What has remained constant is our ability to change and evolve to stay ahead of our clients’ needs and industry demands, and that is what defines our way ahead.

In our most recent year, we achieved our financial targets and continued to generate strong shareholder returns. Revenue, fee revenue, earnings per share and return on average common equity all exceeded 2016 results. Our financial results reflect increased demand from clients, continued strength across our asset management and servicing businesses and prudent expense management, as well as growing global equity markets and rising interest rates. In addition to our positive financial performance, we continued to make substantial progress against our four strategic priorities of strengthening our foundation, delivering highly valued services and solutions to our clients, engaging our people and driving our strategy.

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 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 2018 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 near One Lincoln Street is available at the Hyatt Hotel (entrance 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 2018 ANNUAL MEETING OF SHAREHOLDERS

 

Date   

May 16, 2018

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 amend the Articles of Organization to implement a majority voting standard for specified corporate actions

   4.   

To ratify the selection of Ernst & Young LLP as State Street’s independent registered public accounting firm for the year ending December 31, 2018

   5.   

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 9, 2018, 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 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 [], 2018


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PROXY STATEMENT

SUMMARY INFORMATION

 

2018 Annual Meeting of Shareholders
   
Date:    May 16, 2018
   
Time:    9:00 a.m., Eastern Time
   
Place:   

State Street’s corporate headquarters

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

   

Record date:

 

  

March 9, 2018

 

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 [], 2018, 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.”

 

Voting Matters and Recommendations

 

  Item

   Board Recommendation

 

 

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

  

 

 

FOR Each Nominee

 

Advisory Proposal on 2017 Executive Compensation    FOR
(see “Item 2—Approval of Advisory Proposal on Executive Compensation”)   

 

Amendment to Implement a Majority Voting Standard for Specified Corporate Actions    FOR
(see “Item 3—Amendment to Articles of Organization to Implement a Majority Voting Standard for Specified Corporate Actions”)   

 

Ratification of Ernst & Young LLP as Independent Registered Public    FOR
Accounting Firm for 2018 (see “Item 4—Ratification of the Selection of the Independent Registered Public Accounting Firm”)   

 



 

i

STATE STREET CORPORATION

One Lincoln Street, Boston, Massachusetts 02111

 

 


Table of Contents

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 2017 annual report on Form 10-K. Our 2017 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, 2017, we had consolidated total assets of $238.43 billion, consolidated total deposits of $184.90 billion, consolidated total shareholders’ equity of $22.32 billion and 36,643 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 $33.12 trillion of assets under custody and administration and $2.78 trillion of assets under management as of December 31, 2017. 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 2017, we continued to focus on four strategic priorities: strengthen our foundation, deliver highly valued services and solutions to our clients, engage our people and drive our strategy. We performed well against our strategic priorities and achieved our financial results—with revenue, fee revenue, earnings per share and return on average common equity exceeding 2016 results—all while maintaining a strong capital position, returning value to shareholders and continuing to manage expenses. Below are summary highlights of our 2017 consolidated corporate financial performance. Additional performance indicators are presented in “Compensation Discussion and Analysis—Executive Summary—2017 Corporate Performance Highlights.”

Financial Performance Highlights

Consolidated Financial Performance

 

 

  ($ In millions, except per share data)

  

2017

 

    

2016

 

    

% Change

 

 

 

  Revenue

 

   $

 

11,170

 

 

 

   $

 

10,207

 

 

 

    

 

9.4%   

 

 

 

 

  Total fee revenue

 

  

 

 

 

 

8,905

 

 

 

 

  

 

 

 

 

8,116

 

 

 

 

  

 

 

 

 

9.7%   

 

 

 

 

 

  Diluted earnings per share (EPS)

 

  

 

 

 

 

5.24

 

 

 

 

     4.97        5.4%     

 

  Return on average common equity (ROE)

     10.6%        10.5%        1.0%     

 

Total Shareholder Return (TSR)

 

        
     

State Street

 

    

S&P

Financial Index

 

    

Peer

Group Median(1)

 

 

  1-Year TSR

 

 

  

 

 

 

 

27.83

 

 

 

  

 

 

 

 

22.14

 

 

 

  

 

 

 

 

16.00

 

 

 

  3-Year TSR

 

    

 

31.90

 

 

    

 

47.58

 

 

    

 

39.13

 

 

  (1)

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

 


 

ii


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Board Composition Summary

Listed in the table below are the current members of 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 LOGO

Patrick de Saint-Aignan*

Retired Managing Director and Advisory Director, Morgan Stanley

LOGO LOGO

Lynn A. Dugle*

Chief Executive Officer and Chairman, Engility Holdings, Inc.

LOGO 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*

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

LOGO LOGO LOGO

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

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 a whole, best serve our company and our shareholders. Each of our directors 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

 



 

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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:

 

LOGO

 

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

Corporate Responsibility

State Street’s commitment to social and environmental responsibility and our belief in giving back to the communities in which we live and work are critical to our long-term success. We recognize that sustainable growth comes from operating with absolute integrity and in a way that respects our shareholders, clients, employees, communities and the environment. We firmly believe in the principles of sound governance and to helping our clients succeed. We are dedicated to maintaining a global and inclusive workplace where employees feel valued and engaged. We believe we have a responsibility to enrich our communities, and to be a leader in environmental sustainability, both in the way we carry out our operations and in the products and services we offer. Corporate responsibility highlights and achievements for 2017 include the following:

 

LOGO

 



 

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Table of Contents

Overview of 2017 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

 

 

providing equal pay for work of equal value

 

 

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 our largest shareholders to understand their specific perspectives on our compensation and governance programs. For 2017, 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

 

 

Incentive Compensation. Incentive compensation is a variable amount, comprising both equity-based elements, awarded as a long-term incentive, and cash-based elements, awarded as an annual incentive both in immediate and deferred cash. The Compensation 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 high percentage of each NEO’s total incentive compensation is delivered as an equity-based long-term incentive and a portion of the annual incentive is deferred

 

LOGO

 

LOGO

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



 

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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 Person Transactions

  10

ITEM 1 – ELECTION OF DIRECTORS

  12

EXECUTIVE COMPENSATION

  23

Compensation Discussion and Analysis

  23

Compensation Committee Report

  46

Alignment of Incentive Compensation and Risk

  47

Summary Compensation Table

  49

CEO Pay Ratio Disclosure

  51

2017 Grants of Plan-Based Awards

  52

Outstanding Equity Awards at Fiscal Year-End 2017

  54

2017 Option Exercises and Stock Vested

  55

2017 Pension Benefits

  56

2017 Nonqualified Deferred Compensation

  58

Potential Payments upon Termination or Change of Control as of December 31, 2017

  60

ITEM 2 – APPROVAL OF ADVISORY PROPOSAL ON EXECUTIVE COMPENSATION

  67

ITEM  3 – AMENDMENT TO ARTICLES OF ORGANIZATION TO IMPLEMENT A MAJORITY VOTING STANDARD FOR SPECIFIED CORPORATE ACTIONS

  68

EXAMINING AND AUDIT COMMITTEE MATTERS

  69

Examining and Audit Committee Pre-Approval Policies and Procedures

  69

Audit and Non-Audit Fees

  69

Report of the Examining and Audit Committee

  69

ITEM  4 – RATIFICATION OF THE SELECTION OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

  71

GENERAL INFORMATION ABOUT THE ANNUAL MEETING

  72

Questions and Answers About Voting

  72

Other Matters

  75

Proposals and Nominations by Shareholders

  75

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  76

Section 16(a) Beneficial Ownership Reporting Compliance

  77

APPENDIX A: EXCERPT FROM STATE STREET’S CORPORATE GOVERNANCE GUIDELINES

  A-1

APPENDIX B: PROPOSED AMENDMENT AND RESTATEMENT OF ARTICLE 6 OF STATE STREET ARTICLES OF ORGANIZATION

 

B-1

 

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2018 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 A 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 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 2018. 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 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 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 meet the categorical standards for independence 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. The Board had previously determined in 2017 that Ronald L. Skates and Thomas J. Wilson, who served on the Board

 

STATE STREET CORPORATION    1


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   Corporate Governance (continued)

 

   2018 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

during 2017, were independent. In making the independence determinations in 2018, 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 and Freda)

 

 

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 Mr. Freda)

In 2017, 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

On an annual basis, the Nominating and Corporate Governance Committee assesses each director’s contributions to the overall effectiveness of the Board. The Committee also evaluates the experience, qualifications and attributes of each director and

 

2    STATE STREET CORPORATION


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   Corporate Governance (continued)

 

   2018 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

recommends to the Board the director nominees that should stand for election at the next annual meeting. Based on this evaluation, 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. The director nominee biographies set forth in this proxy statement under the heading “Item 1—Election of Directors” indicate each nominee’s qualifications, skills, experience and attributes that led the Board to conclude he or she should serve as a director of State Street.

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 search firms 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 qualify under the criteria used by the Board for director candidates. A candidate who passes the initial evaluation 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.

Annual Board and Committee Evaluations

On an annual basis, the Board of Directors and each committee conducts an annual self-evaluation of its performance and effectiveness. Directors complete a questionnaire evaluating the Board and each committee they serve on, specifically focusing on areas of potential improvement. The overall performance of the Board—including its contributions to the Company—and a compilation of director responses is reviewed and discussed by the Nominating and Corporate Governance Committee and the Board. Similarly, the performance of each committee, along with specific committee member responses, is reviewed and discussed by the respective committee. The Nominating and Corporate Governance Committee further assesses whether each of the Examining and Audit Committee, Executive Compensation Committee, Risk Committee, Nominating and Corporate Governance Committee and Technology Committee has a functioning self-evaluation process and reports its findings to the Board.

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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   Corporate Governance (continued)

 

   2018 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 2017. Mr. Burnes has served in this capacity for eight annual terms. On November 7, 2017, State Street announced that Joseph L. Hooley will retire as Chief Executive Officer by the end of 2018 and will remain as a director and Chairman of the Board of Directors throughout 2019. Ronald P. O’Hanley will succeed Mr. Hooley as State Street’s Chief Executive Officer upon Mr. Hooley’s retirement.

Our Guidelines provide that any director who reaches the age of 75 will retire from the Board by the end of his or her then current term. The Board waived this requirement for our Lead Director, Mr. Burnes, who turned 75 in February 2018, so that he may continue, if re-elected, as Lead Director until the 2019 annual meeting. The Board took this action to maintain continuity in the Lead Director position during the Company’s CEO transition described above.

 

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 Nominating and Corporate Governance Committee coordinates the annual Lead Director nomination and election process. The 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 at this time and is in the best interests of the Board, State Street and its shareholders. 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

 

4    STATE STREET CORPORATION


Table of Contents

   Corporate Governance (continued)

 

   2018 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

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

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 2017, the Board of Directors held 12 meetings, and each of the incumbent directors attended at least 75 percent of the total of all meetings of the Board and committees on which such director served for the period during which 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 9 directors on the Board at the time of our 2017 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.

 

STATE STREET CORPORATION    5


Table of Contents

   Corporate Governance (continued)

 

   2018 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

Examining and Audit Committee

 

 

LOGO   

Primary Responsibilities:

 

    Responsible for the appointment (including qualifications, performance, independence and periodic consideration of retaining a different firm), 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.

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

 

6    STATE STREET CORPORATION


Table of Contents

   Corporate Governance (continued)

 

   2018 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

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.

Nominating and Corporate Governance Committee

 

 

LOGO

  

Primary Responsibilities:

 

•   Assists the Board with respect to issues and policies affecting our governance practices, 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.

 

STATE STREET CORPORATION    7


Table of Contents

   Corporate Governance (continued)

 

   2018 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

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 our 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 risks

Non-Employee Director Compensation

General

The Nominating and Corporate Governance Committee annually reviews the form and amount of non-employee director compensation and makes a related recommendation to the Board. Mr. Hooley is the only director who is also one of our employees, and the determination of his compensation is described under the heading “Executive Compensation—Compensation Discussion and Analysis.” Mr. Hooley receives no additional compensation for his service as a director. 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 executive compensation generally and, like the Compensation Committee, used the services of Meridian Compensation Partners for 2017. 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. The Committee did not treat peer group data as definitive when determining non-employee director compensation. Rather, it referenced peer group compensation and formed its own perspective on compensation for our non-employee directors. In 2017, the Committee made its recommendation to the Board, which, following the May 2017 annual meeting of shareholders, approved director compensation for all non-employee directors effective through the 2018 annual meeting of shareholders.

 

8    STATE STREET CORPORATION


Table of Contents

   Corporate Governance (continued)

 

   2018 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

Compensation

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

 

 

  Compensation Component

 

  

Value ($)

 

    

Vehicle(1)

 

    

 

Annual Retainer(2)

 

  

 

 

 

 

 

 

$  75,000

 

 

 

 

 

  

 

 

Cash or shares of State Street common stock

 

Annual Equity 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 Retainers

 

  

 

 

 

 

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 and Technology Committee Chair Retainers

 

  

 

 

 

 

15,000

 

 

 

 

  

Cash or shares of State Street common stock

 

 

 

Examining and Audit Committee and Risk Committee Member Retainers

 

  

 

 

 

15,000

 

 

   Cash or shares of State Street common stock    
(1)

All awards made in shares of State Street common stock are granted based upon the closing price of our common stock on the NYSE on the date of the annual meeting that begins the period, rounded up to the nearest whole share, unless otherwise noted. Under the 2017 Stock Incentive Plan, with limited exceptions, the total value of all compensation components to a non-employee director cannot exceed $1.5 million in a calendar year.

(2)

The annual retainer and annual equity award are prorated for any non-employee director joining the Board after the annual meeting that begins the period, with awards made in shares of State Street common stock granted based on the closing price of our common stock on the NYSE on the date of election, rounded up to the nearest whole share.

(3)

Non-employee directors receive meeting fees of $1,500, payable in cash, for each Board and committee meeting attended, including meetings of a State Street affiliate, together with reimbursement of expenses incurred as a result of Board service. The Lead Director does not receive any committee meeting fees, but does receive Board meeting fees and reimbursement of expenses for Board service.

Pursuant to State Street’s Deferred Compensation Plan for Directors, non-employee directors may elect to defer the receipt of 0% or 100% of their (1) retainers, (2) meeting fees or (3) annual equity grant award. Non-employee directors also may elect to receive their retainers in cash or shares of common stock. Non-employee directors who elect to defer the cash payment of their retainers or meeting fees may choose from four notional investment fund returns for such deferred cash. Deferrals of common stock are adjusted to reflect the hypothetical reinvestment in additional shares of common stock for any dividends or distributions on State Street common stock. Deferred amounts will be paid (a) as elected by the non-employee director, on either the date of their 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 non-employee director as either a lump sum or in installments over a two- to five-year period.

Director Stock Ownership Guidelines

Under our stock ownership guidelines, all non-employee directors are required to maintain a target level of stock ownership equal to 5 times the annual equity award of $150,000 for a total of $750,000. There is a five-year phase-in period to achieve compliance with the guidelines. Non-employee directors must hold all net shares received until the full (not pro-rated) target ownership level is achieved. For purposes of these stock ownership guidelines, the value of shares owned is based on the closing price of our common stock on the NYSE on the date that we use for the beneficial ownership table under the heading “Security Ownership of Certain Beneficial Owners and Management—Management.” Non-employee directors are credited with all shares they beneficially own for purposes of the beneficial ownership table which includes all shares awarded as director compensation, whether immediate or deferred. Non-employee directors are expected to attain the ownership level ratably over the phase-in period.

 

STATE STREET CORPORATION    9


Table of Contents

   Corporate Governance (continued)

 

   2018 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

As of March 1, 2018, each of our non-employee directors, except for Ms. Dugle and Mr. O’Sullivan, exceeded the full level of ownership under these guidelines. Ms. Dugle and Mr. O’Sullivan exceeded the pro-rated expected level of ownership, and therefore, the holding requirement applies only to them during the phase-in period.

2017 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

  

 

 

 

$243,000

 

 

  

 

 

 

$150,062

 

 

  

 

 

 

$35,627

 

 

  

 

$

 

428,689

 

 

 

    Patrick de Saint-Aignan

  

 

 

 

169,500

 

 

  

 

 

 

150,062

 

 

  

 

 

 

  35,627

 

 

  

 

 

 

355,189

 

 

 

    Lynn A. Dugle

  

 

 

 

157,500

 

 

  

 

 

 

150,062

 

 

  

 

 

 

  25,289

 

 

  

 

 

 

332,851

 

 

 

    Amelia C. Fawcett

  

 

 

 

164,500

 

 

  

 

 

 

150,062

 

 

  

 

 

 

  19,406

 

 

  

 

 

 

333,968

 

 

 

    William C. Freda

  

 

 

 

178,000

 

 

  

 

 

 

150,062

 

 

  

 

 

 

  35,406

 

 

  

 

 

 

363,468

 

 

 

    Linda A. Hill

  

 

 

 

118,500

 

 

  

 

 

 

150,062

 

 

  

 

 

 

  16,520

 

 

  

 

 

 

285,082

 

 

 

    Sean O’Sullivan

  

 

 

 

114,000

 

 

  

 

 

 

150,062

 

 

  

 

 

 

—  

 

 

  

 

 

 

264,062

 

 

 

    Richard P. Sergel

  

 

 

 

170,000

 

 

  

 

 

 

150,062

 

 

  

 

 

 

  13,015

 

 

  

 

 

 

333,077

 

 

 

    Ronald L. Skates(3)

  

 

 

 

31,500

 

 

  

 

 

 

—  

 

 

  

 

 

 

  16,476

 

 

  

 

 

 

47,976

 

 

 

    Gregory L. Summe

  

 

 

 

135,000

 

 

  

 

 

 

150,062

 

 

  

 

 

 

  15,406

 

 

  

 

 

 

300,468

 

 

 

    Thomas J. Wilson(3)

 

  

 

 

 

 

19,500

 

 

 

 

  

 

 

 

 

—  

 

 

 

 

  

 

 

 

 

—  

 

 

 

 

  

 

 

 

 

19,500

 

 

 

 

 

(1)

For the May 2017-April 2018 Board year, each non-employee director, other than Messrs. Skates and Wilson, received 1,880 shares of State Street common stock valued at $150,062 on the date of grant for the annual equity award. All of these shares were valued based on the closing price of our common stock on the NYSE on May 17, 2017 of $79.82. Stock awards to non-employee directors vest immediately, and there were no unvested non-employee director stock awards as of December 31, 2017.

(2)

Perquisites that Messrs. Burnes, de Saint-Aignan, Freda, Sergel, Skates and Summe as well as Dame Amelia and Mses. Dugle and Hill received in 2017 include: director life insurance coverage and business travel accident insurance paid for by State Street ($627 for Messrs. Burnes, de Saint-Aignan and Sergel; $406 for Messrs. Freda and Summe, Dame Amelia and Ms. Hill; $289 for Ms. Dugle; and $261 for Mr. Skates). Donations by non-employee directors to approved charities are eligible for a Company match of up to $35,000 per calendar year under the State Street matching gift program. Matching charitable contributions made on behalf of the non-employee directors were: $35,000 for Messrs. Burnes, de Saint-Aignan and Freda; $25,000 for Ms. Dugle; $19,000 for Dame Amelia; $16,114 for Ms. Hill; $15,000 for Mr. Summe; and $12,388 for Mr. Sergel. Perquisites for Mr. Skates also include retirement gifts of $16,215 in recognition of his 15 years of service as a member of the Board. The amount of perquisites and other personal benefits for Messrs. O’Sullivan and Wilson have not been itemized because the total did not exceed $10,000.

(3)

Messrs. Skates and Wilson retired from the Board in May 2017. Amounts reported in the “Fees Earned or Paid in Cash” column reflect Board and committee meeting fees earned in 2017 while Messrs. Skates and Wilson were still serving as directors.

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 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 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 ongoing related-person transactions are reviewed annually.

 

10    STATE STREET CORPORATION


Table of Contents

   Corporate Governance (continued)

 

   2018 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

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 3 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 million shares of State Street common stock, valued at approximately $158 million. 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. Due to the change in ownership of BFDS, in accordance with the terms of the BFDS deferred compensation plan, on June 22, 2017, Mr. Joseph L. Hooley received a distribution from BFDS of his full account balance under the BFDS deferred compensation plan (approximately $2.9 million). Mr. Hooley’s participation in the plan resulted from his previously disclosed employment at BFDS, which ended in 2000. Each of these transactions was 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 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 or executive officers.

 

STATE STREET CORPORATION    11


Table of Contents

2018 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

ITEM 1 – ELECTION OF DIRECTORS

 

LOGO

Each director elected at the 2018 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 and 1 serves as the Chief Executive Officer of State Street. All of the non-management directors 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 February 15, 2018, the Board fixed the number of directors at 10, effective as of the date of the 2018 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 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.

 

12    STATE STREET CORPORATION


Table of Contents

   Item 1 (continued)

 

   2018 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)

 

 

Former 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, 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.

 

STATE STREET CORPORATION    13


Table of Contents

   Item 1 (continued)

 

   2018 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

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, Edaris Health, Inc., a private healthcare information technology company (2007 to present) (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)

 

 

Former Director, Allied World Assurance Company Holdings AG, a former NYSE-listed specialty insurance and reinsurance company acquired by Fairfax Financial Holdings in 2017 (2008 to 2017); member of the Enterprise Risk Committee (Chairman), Compensation Committee, Audit Committee and Investment Committee

 

 

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

 

 

Former 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.

 

14    STATE STREET CORPORATION


Table of Contents

   Item 1 (continued)

 

   2018 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

LOGO

 

Career Highlights

 

 

Chief Executive Officer and Chairman, Engility Holdings, Inc., an NYSE-listed engineering and technology consulting company (2018 to present); Chief Executive Officer and Director (2016 to 2018); Director (2014 to 2018) (2014 to 2015 as TASC, prior to acquisition by Engility Holdings, Inc.; 2015 to 2018 as Engility Holdings, Inc.)

 

 

Former 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)

 

 

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

 

 

Former Vice President, Quality & Support Engineering, Texas Instruments, Inc., a Nasdaq-listed electronics manufacturer (1982 to 1997)

Qualifications and Attributes

As the Chief Executive Officer and Chairman 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 perspective 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.

 

STATE STREET CORPORATION    15


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   Item 1 (continued)

 

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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, Standards Board for Alternative Investments (2011 to present) (2011 to 2017 as Hedge Fund Standards Board; 2017 to present as Standards Board for Alternative Investments) (U.K.), a global standard-setting body for the alternative investment industry

 

 

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

 

 

Former Non-Executive Director, Millicom International Cellular S.A., an international telecommunications and media company (2014 to 2016); member of the Remuneration Committee (Chair) and Compliance and Business Practices Committee

 

 

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’s Charitable Foundation, deputy chairman and governor of the London Business School (current), a commissioner of the U.S.-U.K. Fulbright Commission and a trustee of Project Hope (current). Dame Amelia received a B.A. degree from Wellesley College and a J.D. degree from the University of Virginia.

 

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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 U.S. Executive Committee

 

 

Former 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)

 

 

Chairman, Hamilton Insurance Group, a global insurance and reinsurance company (2014 to present) (Director 2014 to 2017; Chairman 2017 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.

 

STATE STREET CORPORATION    17


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   Item 1 (continued)

 

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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, Harvard Business Publishing

 

 

Former Director, Eaton Corporation, an NYSE-listed power management company providing energy-efficient solutions that manage electrical, hydraulic, and mechanical power (1994-2017) (1994 to 2012 as Cooper Industries, Inc., prior to merger with Eaton Corporation; 2012 to 2017 as Eaton Corporation); member of the Governance Committee and Compensation and Organization Committee

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, consulting 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, corporate governance matters and implementation of global strategies. 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 Rockefeller Foundation and the Nelson Mandela Children’s Fund U.S.A. 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.

 

18    STATE STREET CORPORATION


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   Item 1 (continued)

 

   2018 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

LOGO

Career Highlights

 

 

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

 

 

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

 

 

Former 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 and the Massachusetts Competitive Partnership and is a trustee of the board of Boston College. He received his B.S. degree from Boston College.

 

STATE STREET CORPORATION    19


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   Item 1 (continued)

 

   2018 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.

 

20    STATE STREET CORPORATION


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   Item 1 (continued)

 

   2018 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)

 

 

Former 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.

 

STATE STREET CORPORATION    21


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   Item 1 (continued)

 

   2018 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)

 

 

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

 

 

Former 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 (2010 to present) (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)

 

 

Former Director, LMI Aerospace, a Nasdaq-listed designer and provider of aerospace structures (2014 to 2017)

 

 

Former 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 is also in the Engineering Hall of Distinction at the University of Kentucky.

 

22    STATE STREET CORPORATION


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2018 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 2017 compensation decisions for the following named executive officers, who we refer to as our NEOs.

 

 

Joseph L. Hooley — Chairman and Chief Executive Officer

 

 

Eric W. Aboaf — Executive Vice President and Chief Financial Officer

 

 

Ronald P. O’Hanley — President and Chief Operating Officer

 

 

Andrew Erickson — Executive Vice President and Head of State Street Global Services

 

 

Cyrus Taraporevala — President and Chief Executive Officer of State Street Global Advisors (SSGA)

 

 

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

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

 

 

   

 

 

23  

 

 

 

 

 

   Shareholder Outreach and “Say-on-Pay”

 

 

   

 

 

28  

 

 

 

 

 

  Compensation Committee Process Concerning Risk Alignment

 

 

   

 

 

28  

 

 

 

 

 

  Compensation Philosophy

 

 

   

 

 

29  

 

 

 

 

 

  Compensation Design Elements

 

 

   

 

 

30  

 

 

 

 

 

  2017 Compensation Decisions

 

 

   

 

 

31  

 

 

 

 

 

  Other Elements of Our Process

 

 

   

 

 

41  

 

 

 

 

 

  Other Elements of Compensation

 

 

   

 

 

43  

 

 

 

 

 

  Executive Equity Ownership Guidelines, Practices and Policies

 

 

   

 

 

45  

 

 

 

 

 

  Tax Deductibility of Executive Compensation

 

   

 

46  

 

 

 

 

Executive Summary

2017 Corporate Performance Highlights

In 2017, our 225th anniversary year, we honored State Street’s heritage of stewardship and innovation by continuing to invest in, strengthen and evolve our business to meet our clients’ ever-changing needs. We achieved strong financial results for the year while advancing our digital strategy, developing new solutions to support our clients, positioning State Street for continued growth and demonstrating our ongoing commitment to risk excellence. Our results reflect strength across our asset servicing and asset management businesses, increased client demand for our products and services and disciplined expense control. Strong global equity markets and rising interest rates also created a favorable environment for revenue growth. Below are selected key indicators we use to monitor our performance. The Committee also considered these indicators in evaluating 2017 corporate performance for compensation purposes. Additional factors considered by the Committee are described under the heading “2017 Compensation Decisions—Corporate Performance.”

 

STATE STREET CORPORATION    23


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   Executive Compensation (continued)

 

   2018 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

Financial Performance Highlights

Consolidated Financial Performance

 

  ($ In millions, except per share data)

 

  

2017

 

    

2016

 

    

% Change     

 

 

 

  Revenue

 

  

 

$

 

 

  11,170

 

 

 

 

  

 

$

 

 

  10,207

 

 

 

 

  

 

 

 

 

9.4%

 

 

 

 

 

  Total fee revenue

 

 

  

 

 

 

 

8,905

 

 

 

 

  

 

 

 

 

8,116

 

 

 

 

  

 

 

 

 

9.7%

 

 

 

 

  Diluted earnings per share (EPS)

 

  

 

 

 

 

5.24

 

 

 

 

  

 

 

 

 

4.97

 

 

 

 

  

 

 

 

 

5.4%

 

 

 

 

 

  Return on average common equity (ROE)

 

 

  

 

 

 

 

10.6%

 

 

 

 

  

 

 

 

 

10.5%

 

 

 

 

  

 

 

 

 

1.0%

 

 

 

 

Revenue, EPS and ROE, presented in accordance with U.S. generally accepted accounting principles (GAAP), all increased in 2017 from 2016 as shown in the table above. Results also increased on an operating (non-GAAP) basis, which 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. See “Other Elements of our Process—Non-GAAP Information” below for an explanation of our operating (non-GAAP) basis financial presentation.

Total Shareholder Return (TSR)

 

     

State Street

 

 

S&P

Financial

Index

 

 

Peer

Group

Median(1)

 

  1-Year TSR

 

 

    

 

 

 

 

27.83

 

 

%

 

   

 

 

 

 

22.14

 

 

%

 

   

 

 

 

 

16.00

 

 

%

 

  3-Year TSR

 

      

 

31.90

 

%

 

     

 

47.58

 

%

 

     

 

39.13

 

%

 

(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 2017. These included:

 

 

Grew our asset servicing and asset management businesses, including increasing year-end assets under custody and administration (AUCA) by 15% to $33.12 trillion and assets under management (AUM) by 13% to $2.78 trillion, each compared to year-end 2016, supported by strong global equity markets

 

 

Made major strides in the implementation of 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, including

 

   

delivered industry-leading improvements in speed of service and transparency for our clients

 

   

achieved approximately $150 million of net pre-tax program savings target for 2017, approximately $10 million more than projected

 

 

Developed new solutions to meet our clients’ needs, including launching

 

   

a suite of 15 ultra-low-cost SPDR® Portfolio exchange-traded funds (ETFs) that provide investors access to a wide range of equity and fixed income asset classes

 

   

ESGXSM, an analytics tool designed to identify and highlight potential sources of environmental, social and governance risk that may be overlooked by traditional financial analysis

 

 

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

For further details on these and other initiatives, see below under the headings “2017 Compensation Decisions—Corporate Performance” and “2017 Compensation Decisions—Individual Compensation Decisions.”



 

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   Executive Compensation (continued)

 

   2018 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

Additional Performance Highlights

Returning Value to Shareholders

 

 

We declared total quarterly common stock dividends of $1.60 per share in 2017, or approximately $596 million, compared to total quarterly common stock dividends of $1.44 per share, or approximately $559 million, in 2016

 

 

We purchased approximately 16.8 million shares of our common stock in 2017 at a total cost of approximately $1.45 billion, compared to purchases of approximately 21.1 million shares at a total cost of approximately $1.37 billion in 2016

Capital Levels

Our regulatory capital levels remained well above current regulatory minimum requirements in 2017.

 

  Capital Ratio

 

State Street Corporation

December 31, 2017(1)

 

 

2017 Minimum Requirements    

Including Capital Conservation Buffer    

and G-SIB Surcharge(2)

 

 

  Common Equity Tier 1 Risk-Based Capital

 

 

 

 

 

11.9

 

 

%

 

 

 

 

 

6.5%    

 

 

 

 

  Tier 1 Risk-Based Capital

 

 

 

 

 

15.0

 

 

%

 

 

 

 

 

8.0%    

 

 

 

 

  Total Risk-Based Capital

 

 

 

 

 

16.0

 

 

%

 

 

 

 

 

10.0%    

 

 

 

 

  Tier 1 Leverage

 

 

 

 

 

7.3

 

 

%

 

 

 

 

 

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 2017 Comprehensive Capital Analysis and Review, or CCAR process, without Federal Reserve objection to our 2017 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.

Resolution Plan Assessment

As a requirement of the regulatory reforms under the Dodd-Frank Act, State Street, along with other banking institutions with $50 billion or more in total assets, periodically prepares and files its resolution plan in order to demonstrate State Street’s plan of orderly resolution in the event of major financial distress or failure. We submitted our 2017 Resolution Plan, commonly referred to as a “living will,” to the Federal Reserve and the Federal Deposit Insurance Corporation on June 30, 2017, and the agencies announced that they did not identify any deficiencies or shortcomings in the plan.

Other Matters

State Street’s 2017 performance is reviewed in greater detail, along with relevant risks associated with our business, results of operations and financial condition, in our annual report on Form 10-K, which accompanies this proxy statement and was previously filed with the Securities and Exchange Commission, or SEC.

2017 Leadership Transition

On November 7, 2017, we announced that Mr. Hooley will retire as Chief Executive Officer by the end of 2018 and will remain as Chairman of the Board of Directors throughout 2019. State Street’s Board of Directors appointed Mr. O’Hanley to serve as our President and Chief Operating Officer effective November 6, 2017. Mr. O’Hanley will succeed Mr. Hooley as State Street’s Chief Executive Officer upon Mr. Hooley’s retirement. As part of this transition we announced several other changes to the leadership team, including retirements, promotions and other key leadership changes. Messrs. Aboaf, Erickson and Taraporevala, in particular, saw significant increases in their responsibilities, supporting the implementation of this transition. Mr. Taraporevala was appointed President and Chief Executive Officer of SSGA, Mr. Erickson was appointed Head of State Street Global Services and Mr. Aboaf took on responsibility for our Global Strategy function, in addition to his responsibilities as our Chief Financial Officer that he assumed earlier this year.



 

STATE STREET CORPORATION    25


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   Executive Compensation (continued)

 

   2018 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

2017 Corporate and NEO Performance Evaluations

Corporate Performance

In determining our current NEOs’ compensation for 2017, 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

 

 

2017 Committee Evaluation

 

 

Financial Performance

 

 

 

Above Expectations

 

 

Strategic Objectives Performance

 

 

 

Above Expectations

 

 

Risk Management Performance

 

 

 

At Expectations

 

 

 

Overall Performance

 

 

Above Expectations

 

NEO Performance and Compensation

Based on the year’s strong performance as described above, and detailed further under the heading “2017 Compensation Decisions—Individual Compensation Decisions,” our current NEOs were paid above their target incentives for 2017.(1)

Annual Incentive. The Compensation Committee awarded annual incentives to our current NEOs ranging from 125% to 158% of target for 2017, based on the Above Expectations assessment of overall corporate performance. Individual awards reflect the Committee’s evaluation of the current NEOs’ overall 2017 performance, which included particularly strong strategic and financial performance, achieved with appropriate consideration to risk management. Consequently, the Committee believed annual incentives above target to be appropriate.

Long-Term Incentive. The value ultimately realized from long-term incentives will be based on future stock price performance. In addition, a majority of the long-term incentive is only paid if specific financial targets are achieved. Therefore, our long-term incentive awards remain relatively consistent with target compensation levels, absent a change in the executive’s responsibilities, State Street’s long-term performance trend or market practices. As noted below under “New Compensation Program Elements,” in 2017 the Committee formalized its assessment of actions and behaviors upon which the long-term incentive may vary. The formalized assessment evaluated leadership qualities based on factors such as diversity and inclusion, talent development and employee engagement. The Committee awarded long-term incentive awards for our current NEOs ranging from 95% to 100% of target for 2017.

For additional information concerning how the Committee incorporated the individual performance of Mr. Hooley and our other current NEOs into 2017 compensation decisions, see “2017 Compensation Decisions—Individual Compensation Decisions.”

 

(1)

Mr. Bell ceased serving as our Chief Financial Officer in March 2017 and did not receive incentive compensation for 2017 performance.



 

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   Executive Compensation (continued)

 

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Sound Compensation and Corporate Governance Practices

Our NEO compensation practices are designed to support good governance and avoid 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    27


Table of Contents

   Executive Compensation (continued)

 

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  New Compensation Program Elements

  We made the following enhancements to NEO compensation policies and practices in 2017:

LOGO



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 our largest shareholders to understand their specific perspectives on our compensation and governance programs. For 2017, 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 2017 annual meeting, our shareholders approved that proposal with over 96% of the votes cast

Based on the results of our “say-on-pay” vote and shareholder outreach, the Committee believes that our shareholders support our overall executive compensation program. For the 2017 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.

Compensation Committee Process Concerning Risk Alignment

For 2017, 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 additional 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

 

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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 or activities 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 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 or other downward adjustments 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

 

 

provide equal pay for work of equal value

 

 

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

 

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Compensation Design Elements

Elements of Compensation. Key elements of our total compensation program for our NEOs for 2017 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)(2)

 

 

•   DVAs are units representing a notional invest
ment in a money market fund

•   Upon vesting, notional units are paid in cash

•   Vest ratably in 16 quarterly installments begin
ning in May 2018

•   Number of actual units awarded is increased to provide an estimated annual return of approximately 3% over the deferral period

  

 

•   Subject to time vesting requirements

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

•   Cash-based DVAs mitigate the dilutive effects of deferred equity compensation

 

 

  Long-Term Incentive Compensation

 

  Performance -

  Based

  Restricted Stock

  Units (RSUs)

 

 

•   Equity-based compensation

•   The number of RSUs ultimately earned for awards based on 2017 performance are based on State Street’s average annual GAAP ROE performance over the three-year performance period 2018-2020, subject to adjustment for pre-established, objectively determinable factors(3)

•   GAAP ROE performance target is 13%; RSUs are earned under the following schedule:

 

LOGO

 

•   RSUs ultimately earned “cliff” vest in one installment in February 2021

  

 

•   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 2017 ROE threshold for receiving any of the shares awarded increased from 5% to 8%, with threshold payout rate increasing from 40% to 50%

   NEW for 2017 ROE performance target increased from 11% to 13%

   NEW for 2017 ROE performance required for maximum payout increased to 18% (from 15%). Each award has a maximum payout of 150% (increased from 140%) 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 Stock

  Awards (DSAs)

 

 

•   Equity-based compensation

•   Vest ratably in four annual installments beginning in February 2019

  

 

•   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)

For 2017, Mr. Taraporevala participated in an arrangement referred to as the SSGA Long Term Incentive Plan (SSGA LTIP) based on his role prior to his appointment as President and Chief Executive Officer of SSGA in November 2017. Granting of awards, vesting and payment terms under the SSGA LTIP mirror the terms of the DVAs granted

 

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to our other current NEOs. The one material difference is that participants choose among three notional investment options under the SSGA LTIP, including a money market option, which Mr. Taraporevala selected. The money market notional investment is increased to approximate a total annual return target of 3% over the deferral period in the same manner as under the DVA terms.

(3)

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 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.

2017 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. 2017 annual base salary rates for the NEOs, other than Mr. Erickson, remained unchanged from their levels in 2016. Effective April 1, 2017, Mr. Erickson received an increase of $46,727 to his 2016 salary in recognition of his June 2016 appointment as Head of Investment Servicing, Americas and relative internal and external salary levels. Mr. Erickson was appointed to his current role, Head of State Street Global Services, effective in November 2017, but received no further increase to his salary at that time. Mr. Erickson’s base salary is paid in Hong Kong Dollars (HK$) rather than U.S. Dollars (US$). Base salary displayed in this CD&A for Mr. Erickson is converted from HK$ to US$ using the December 29, 2017 exchange rate of 1 HK$ to 0.127948 US$.

Incentive Compensation. Incentive compensation is a variable amount, comprising both equity-based elements, awarded as a long-term incentive, and cash-based elements, awarded as an annual incentive both in immediate and deferred cash. 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 high percentage of each NEO’s total incentive compensation is delivered as an equity-based long-term incentive and a portion of the annual incentive is deferred.

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.

Individual Compensation Targets. For 2017, the Compensation Committee established compensation targets for each current 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 composed of non-deferred cash and DVAs (and SSGA LTIP awards in lieu of DVAs for Mr. Taraporevala), and is designed to reflect the executive’s performance for the year, including on a strategic, financial and risk management basis. Therefore, the actual annual incentive can vary from target year to year based on State Street’s and the executive’s performance. The final annual incentive award can range between 0% and 200% of target to reflect performance. 2017 annual incentive awards (granted in February 2018) for our current NEOs ranged from 125% to 158% of target.

 

 

Long-Term Incentive. The long-term incentive is composed of performance-based RSUs and DSAs and 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 that management practices, such as diversity and inclusion and employee engagement initiatives, are in place to deliver the required talent pipeline, as well as other considerations deemed appropriate by the Committee. The Committee emphasizes different behaviors from year to year in making long-term incentive decisions

 

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relative to each NEO’s target. For 2017, the Committee emphasized factors such as diversity and inclusion, talent development and employee engagement. 2017 long-term incentive awards (granted in February 2018) for our current NEOs ranged from 95% to 100% of target.

NEW for 2017. In determining NEO long-term incentive grants for 2017 performance, the Compensation Committee formalized its assessment of actions and behaviors (as described above) to include factors such as diversity and inclusion, talent development and employee engagement.

The Committee establishes annual and long-term incentive compensation targets for NEOs as well as members of State Street’s Management Committee at the beginning of each year. The 2017 annual and long-term incentive compensation targets established for each of our NEOs, other than Mr. Bell, are listed in the following chart:

 

  Name(1)   

Base

Salary Rate

    

Target Incentive Compensation(2)

 

     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

 

 

 

 

  Eric W. Aboaf(3)

 

    

 

700,000

 

 

 

    

 

1,700,000

 

 

 

    

 

3,100,000

 

 

 

    

 

4,800,000

 

 

 

    

 

5,500,000

 

 

 

  Ronald P. O’Hanley

 

    

 

800,000

 

 

 

    

 

2,900,000

 

 

 

    

 

5,300,000

 

 

 

    

 

8,200,000

 

 

 

    

 

9,000,000

 

 

 

  Andrew Erickson(3)

 

    

 

446,539

 

 

 

    

 

1,050,000

 

 

 

    

 

2,000,000

 

 

 

    

 

3,050,000

 

 

 

    

 

3,496,539

 

 

 

  Cyrus Taraporevala(3)(4)

 

    

 

400,000

 

 

 

    

 

1,600,000

 

 

 

    

 

1,600,000

 

 

 

    

 

3,200,000

 

 

 

    

 

3,600,000

 

 

 

 

(1)

Mr. Bell ceased serving as our Chief Financial Officer in March 2017 as part of a planned transition. The Committee therefore did not establish incentive compensation targets for his 2017 performance.

(2)

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.

(3)

The award granted to Mr. Aboaf in connection with his hiring and the promotion awards granted to Messrs. Aboaf, Erickson and Taraporevala described under “2017 Compensation Decisions—Individual Compensation Decisions” were not considered in setting annual and long-term incentive targets and are therefore excluded from this table.

(4)

Mr. Taraporevala was not a member of State Street’s Management Committee when 2017 incentive compensation targets were set by the Compensation Committee. His targets were set by Messrs. O’Hanley and Hooley in March 2017, based upon considerations consistent with those used by the Compensation Committee in setting targets for each member of the Management Committee.

 

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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 2017 compensation decisions for the current NEOs, the Committee used the following framework:

 

LOGO

Performance assessed under this framework drives incentive compensation determinations relative to each NEO’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 2017. The Compensation Committee also received an additional interim financial performance scorecard update in September 2017, as well as the final 2017 financial, strategic objectives and risk management scorecards in early 2018. 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 2017, we achieved strong financial results while advancing our digital strategy, developing new solutions to support our clients, positioning State Street for continued growth and demonstrating our ongoing commitment to risk excellence. Our results reflect strength across our asset servicing and asset management businesses, increased client demand for our products and services and disciplined expense control. Strong global equity markets and rising interest rates also created a favorable environment for revenue growth.

 

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

 

  Performance Scorecard   Key Areas Reviewed   2017 Performance Highlights  

2017 Committee

Evaluation

  Financial Performance  

•   Revenue

•   EPS

•   ROE

•   TSR

 

•  Overall revenue as well as total fee revenue and net interest revenue increased from 2016 on both a GAAP and operating (non-GAAP) basis(1); EPS and ROE also increased from 2016 on both a GAAP and operating basis

•  Selected 2017 GAAP-basis performance metrics, compared to the median of our 12-firm compensation peer group(2). Results as follows:

 

  Above Expectations
        2017 Performance Metric  

12-Firm Compensation

Peer Group(1)

   
   

 

Revenue growth

 

 

 

 

 

Top quartile    

 

 
   

 

EPS growth

 

 

 

 

Above median    

 

 
   

 

ROE

 

 

 

 

Above median    

 

 
   

 

TSR (1-Year)

 

 

 

 

Top quartile    

 

 
                 

  Strategic Objectives

  Performance

 

•   Strengthen our foundation

•   Deliver highly valued services and solutions to our clients

•   Engage our people

•   Drive our strategy

 

•   Grew our asset servicing and asset management businesses, including increasing year-end AUCA by 15% to $33.12 trillion and AUM by 13% to $2.78 trillion, each compared to year-end 2016

•   Made major strides in the implementation of 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, including

•    delivered industry-leading improvements in speed of service and transparency for our clients

•    Achieved ~$150 million of net pre-tax program savings target for 2017, ~$10 million more than projected, supported by strong global equity markets

•   Developed new solutions to meet our clients’ needs, including launching

•    a suite of 15 ultra-low-cost SPDR® Portfolio ETFs that provide investors access to a wide range of equity and fixed income asset classes

•    ESGXSM, an analytics tool designed to identify and highlight potential sources of environmental, social and governance risk that may be overlooked by traditional financial analysis

•   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

  Above Expectations

  Risk Management

  Performance

 

•   Financial risk

•   Non-financial risk

•   Business unit risks

•   Capital/stress testing

•   Regulatory posture

 

•   Performance across top risk exposures was in line with the firm’s risk tolerance

•   Continued achievement against expectations for the firm’s risk excellence initiatives aimed at strengthening the risk and control framework

•   Completed the Federal Reserve’s 2017 CCAR process without the Federal Reserve objecting to our 2017 capital plan

•   The Federal Reserve and FDIC reported that they did not identify any shortcomings or deficiencies in State Street’s 2017 Resolution Plan

  At Expectations
  Overall Performance  

•   Financial performance

•   Strategic objectives performance

•   Risk management performance

 

   Reflects an overall assessment of all three summaries of corporate performance

  Above Expectations

 

(1)

See “Other Elements of our Process—Non-GAAP Information” below for an explanation of our operating (non-GAAP) basis financial presentation.

(2)

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

 

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Individual Compensation Decisions

 

 

LOGO

In addition to State Street’s overall performance described above, the Committee also considered each NEO’s individual performance in determining the current NEO’s total compensation. Accordingly, the Committee reviewed performance scorecards derived from our corporate performance goals and tailored to each current NEO in the following areas: strategic, financial, risk management, and leadership and talent. Performance highlights and 2017 total compensation decisions are described in the table below.(1)

 

 Joseph L. Hooley

2017 Performance Highlights

 

 Strategic

 

 

Financial

 

 

Risk Excellence

 

 

Leadership & Talent

 

•  Advanced our multi-year Digital Strategy

 

—  Launched the next phase of our technology transformation initiative

—  Achieved operating efficiencies through automation, process redesign and global workforce strategy

—  Delivered improved speed of service and transparency to clients

 

•  Strengthened the core business

 

—  Restructured service delivery and operations organizations to better meet clients’ strategic needs

—  Won key outsourcing mandates and increased year-end AUCA 15% from 2016 year-end to $33.12 trillion, supported by strong global equity markets

 

•  Invested in differentiated capabilities and growth

 

—  Added new data and analytics capabilities to support our clients’ risk and portfolio management needs

—  Delivered innovative new ETFs and increased year-end AUM 13% from 2016 year-end to $2.78 trillion, supported by strong global equity markets

 

•  Delivered 1-Year TSR of 27.83% to investors

 

—  Returned ~$2 billion to shareholders through dividends and share repurchases

 

•  Exceeded financial targets(2)

 

—  Increased EPS on both a GAAP and operating (non-GAAP) basis

—  Grew revenue on both a GAAP and operating basis

—  Increased ROE on both a GAAP and operating basis

—  Maintained a strong capital position, improving Common Equity Tier 1 Risk-Based Capital and Tier 1 Risk-Based Capital ratios

 

•  Accelerated Beacon savings

 

—  Achieved ~$150 million in 2017 net pre-tax savings

 

•  Strengthened risk excellence with improvements in controls, culture and governance

 

—  Strengthened business controls and put programs in place to methodically address risk management priorities

—  Executed an enterprise-wide management training program to elevate professional challenge

—  Redesigned our conduct standards framework and governance

 

•  Maintained focus on meeting regulatory expectations

 

—  Completed the Federal Reserve’s 2017 CCAR process without the Federal Reserve objecting to our 2017 capital plan

—  The Federal Reserve and FDIC reported that they did not identify any shortcomings or deficiencies in our 2017 Resolution Plan

 

•  Strengthened our workforce
and leadership team

 

—  Increased diversity, internal mobility, and professional development across the workforce

—  Executed on leadership succession plan

—  Expanded the Management Committee to enrich perspective and diversity

 

•  Transformed talent management

 

—  Redesigned our employee performance management processes

—  Implemented new Human Capital Management platform as a basis for introducing new talent management capabilities

 

2017 Compensation

 

 

•  Mr. Hooley was awarded total compensation of $15,750,000 for 2017, up from $13,500,000 in 2016, which includes annual incentives at 158% of target and long-term incentives at 100% of target. Overall incentive compensation was awarded at 113% of target

 

 

LOGO

 

(1)

Mr. Bell ceased serving as our Chief Financial Officer in March 2017 and did not receive incentive compensation for 2017 performance.

(2)

Compared to year-end 2016, as appropriate. See “Other Elements of our Process—Non-GAAP Information” below for an explanation of our operating (non-GAAP) basis financial presentation.

 

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Eric W. Aboaf

 

2017 Performance Highlights

 

As Chief Financial Officer, Mr. Aboaf drove strong corporate financial results and a more effective Finance function.

 

•  Delivered 1-Year TSR of 27.83%, including returning ~$2 billion to shareholders through common stock purchases and dividends

 

•  Exceeded corporate financial targets, increasing revenue, EPS and ROE on both a GAAP and operating (non-GAAP)(1) basis from year-end 2016, while maintaining a strong capital position

 

•  Actively intervened to maintain expense discipline, including achieving ~$150 million in 2017 net pre-tax savings through the Beacon initiative

 

•  Implemented effective liability pricing actions to improve net interest margin (NIM)

 

•  Delivered on regulatory commitments

 

•  Supported culture of risk excellence with particular focus on regulatory risk management

 

•  Realigned Finance’s global operating model to drive efficiency and effectiveness

 

•  Effectively progressed talent development, employee engagement and diversity initiatives in the Finance function

 

2017 Compensation

 

•  Mr. Aboaf was hired in December 2016 to succeed Mr. Bell as Chief Financial Officer and was appointed to the role on February 28, 2017

 

•  The Committee granted an award to Mr. Aboaf in connection with his hiring, awarded in the first quarter of 2017 and designed to compensate for the loss of 2016 incentive compensation from Mr. Aboaf’s prior employer. This award was granted in a combination of non-deferred cash, DSAs and performance-based RSUs, on the same terms and vesting in the same manner as 2016 incentive compensation awards made to our other NEOs in February 2017. The award was granted as follows:

 

•  $892,500 in non-deferred cash;

•  $663,000 in DSAs; and

•  $994,500 in performance-based RSUs

 

•  The Committee also granted a promotion award valued at $2,000,000 to Mr. Aboaf in February 2018 in recognition of the additional responsibilities he assumed, in support of the implementation of our leadership transition announced in November 2017. This award was granted entirely in the form of performance-based RSUs, which vest in the same manner as 2017 incentive compensation awards made to our other current NEOs in February 2018

 

•  Mr. Aboaf was awarded total compensation of $6,367,000 for 2017, excluding the award made in connection with his hiring and the promotion award noted above. This total includes annual incentives at 151% of target and long-term incentives at 100% of target. Overall incentive compensation was awarded at 118% of target

 

•  Note on 2018 Compensation – In connection with the expansion of Mr. Aboaf’s role to include responsibility for our Global Strategy function noted above, the Committee increased his target total compensation for 2018 from $5,500,000 to $6,500,000

     LOGO   

 

(1)

See “Other Elements of our Process—Non-GAAP Information” below for an explanation of our operating (non-GAAP) basis financial presentation.

 

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Ronald P. O’Hanley

 

2017 Performance Highlights

 

As Chief Executive Officer of SSGA, Mr. O’Hanley delivered strong financial results, innovative new products and improved marketing

 

•  Improved revenue and margin through focused investments and expense discipline

 

•  Expanded ETF business with the launch of low cost ETFs and innovative new products

 

•  Raised market profile with Fearless Girl and SSGA’s leadership in strong corporate governance

 

•  Achieved accretion and full integration of the 2016 GE Asset Management acquisition ahead of plan

 

•  Launched Office of the CIO business, securing key client wins in 2017

 

•  Executed leadership succession plan with the appointment of Mr. Taraporevala to President and Chief Executive Officer of SSGA in November 2017

 

•  Supported culture of risk excellence, delivering results with appropriate focus on risks and controls, in particular regarding development of State Street’s 2017 resolution plan

 

•  Executed on key talent development and employee engagement initiatives, with continued focus needed to enhance the diversity of our workforce in SSGA

 

2017 Compensation

  

 

•  Mr. O’Hanley was awarded total compensation of $9,779,000 for 2017, up from $8,670,000 in 2016, which includes annual incentives at 136% of target and long-term incentives at 95% of target. Overall incentive compensation was awarded at 110% of target

 

•  Note on 2018 Compensation – In connection with Mr. O’Hanley’s promotion described above under “Executive Summary—2017 Leadership Succession,” the Committee increased his target total compensation for 2018 from $9,000,000 to $10,500,000

  

  LOGO   

 

 

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Andrew Erickson

 

2017 Performance Highlights

 

As Head of Investor Services Americas, Mr. Erickson attracted significant new business, improved quality of service for existing clients and prudently managed expenses

 

•  Achieved transformational sales wins, while leading his peers in efficiency improvements

 

•  Developed enhanced reporting to improve service levels and relationship coverage for State Street’s clients and optimize internal processes

 

•  Strengthened control environment within function with an active focus on risk excellence

 

•  Continued to improve employee engagement, reducing unplanned turnover and increasing internal mobility while championing professional challenge initiatives. However, additional focus needed to further enhance the diversity of our workforce in Investor Services Americas

 

2017 Compensation

 

  

•  Mr. Erickson was appointed Head of State Street Global Services effective in November 2017. Prior to his appointment, he served as Executive Vice President and Head of Investment Servicing, Americas

 

•  The Committee also granted a promotion award valued at $4,000,000 to Mr. Erickson in November 2017 in recognition of his promotion and role in the implementation of our leadership transition announced in November 2017. This award, granted entirely in the form of performance-based RSUs, was originally granted with a GAAP ROE performance target of 12%, an increase from 11% for 2016 and 2015 awards reflecting evolving market conditions and increased visibility into the effects of new regulatory standards. However, in February 2018

 

•  Mr. Erickson agreed to modify the award to increase the ROE target to 13% to reflect the expected effects of the U.S. tax legislation enacted in December 2017 and to align with the terms of the 2017 awards made to our other current NEOs in February 2018 Mr. Erickson was awarded total compensation of $3,937,539 for 2017, excluding the promotion award noted above, which includes annual incentives at 142% of target and long-term incentives at 100% of target. Overall incentive compensation was awarded at 114% of target

 

•  Note on 2018 Compensation – In connection with Mr. Erickson’s promotion to Head of State Street Global Services noted above, the Committee increased his target total compensation for 2018 from approximately $3,500,000 to $5,000,000, which includes an approved base salary increase, effective in April 2018, from $446,539 to $500,000(1)

  

LOGO   

 

(1)

The Committee set Mr. Erickson’s 2018 target total compensation and base salary increase in HK$ at 39,060,000 HK$ and 3,910,000 HK$, respectively. US$ values quoted are approximate and based on the December 29, 2017 exchange rate of 1 HK$ to 0.127948 US$.

 

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   2018 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

Cyrus Taraporevala

 

2017 Performance Highlights

 

As Head of the Global Institutional Group at SSGA, oversaw a remodeling of Institutional distribution, successful price competitiveness and product innovation efforts and improved marketing for our SSGA and SPDR® brands

 

•  Defined a more effective Institutional distribution strategy and operating model

 

•  Improved revenue and achieved accretion for the 2016 GE Asset Management acquisition ahead of plan

 

•  Successfully launched expanded investment capabilities, while rationalizing and repricing existing product ranges

 

•  With Mr. O’Hanley, improved our market profile with Fearless Girl and SSGA’s leadership in strong corporate governance

 

•  Executed talent plan, including widespread skills upgrades within the global institutional group organization

 

•  Maintained critical focus on risk management activities through close partnerships with Compliance and Audit functions

 

2017 Compensation

 

 

•  Mr. Taraporevala was appointed President and CEO of SSGA effective November 2017. Prior to his appointment, he served as Executive Vice President and Head of the Global Institutional Group at SSGA. As a result, his 2017 compensation reflects the compensation program applicable to SSGA Executive Vice Presidents. This program was substantially similar to the compensation program for the other current NEOs, except for the following:

 

•  He received a lower percentage of his long-term incentive in performance-based RSUs (20% instead of 60%), with the remainder of his long-term incentive composed of DSAs;

 

•  He received deferred cash-based incentive compensation in the form of SSGA LTIP awards, discussed under “Compensation Design Elements,” above, rather than DVAs

 

•  The Committee also granted a promotion award valued at $4,000,000 to Mr. Taraporevala in November 2017 in recognition of his promotion and role in the implementation of our leadership transition announced in November 2017. This award, granted entirely in the form of performance-based RSUs, was originally granted with a GAAP ROE performance target of 12%, an increase from 11% for 2016 and 2015 awards reflecting evolving market conditions and increased visibility into the effects of new regulatory standards. However, in February 2018 Mr. Taraporevala agreed to modify the award to increase the ROE target to 13% to reflect the expected effects of the U.S. tax legislation enacted in December 2017 and to align with the terms of the 2017 awards made to our other current NEOs in February 2018

 

•  Mr. Taraporevala was awarded total compensation of $4,000,000 for 2017, excluding the promotion award noted above, which includes annual incentives at 125% of target and long-term incentives at 100% of target. Overall incentive compensation was awarded at 113% of target

 

•  Note on 2018 Compensation – In connection with Mr. Taraporevala’s promotion to President and CEO of SSGA noted above, the Committee increased his target total compensation for 2018 from $3,600,000 to $5,000,000, which includes an approved base salary increase, effective in April 2018, from $400,000 to $450,000

 

LOGO   

 

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   2018 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

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.

The Compensation Committee’s 2017 total compensation decisions for the current NEOs relative to their targets are presented in the table below.

 

       Annual Incentive        Long-Term Incentive  

  Named Executive

  Officer(1)

      

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

 
 
 
      

•  Designed to promote long-term  performance
and leadership behaviors and expected to
be relatively consistent year to year

 
 
 
     Target        Actual        Target        Actual  

 

  Joseph L. Hooley

 

    

 

 

 

 

$3,000,000

 

 

 

 

    

 

 

 

 

$4,750,000

 

 

 

 

    

 

 

 

 

$10,000,000

 

 

 

 

    

 

 

 

 

$10,000,000

 

 

 

 

 

  Eric W. Aboaf(2)

 

    

 

 

 

 

1,700,000

 

 

 

 

    

 

 

 

 

2,567,000

 

 

 

 

    

 

 

 

 

3,100,000

 

 

 

 

    

 

 

 

 

3,100,000

 

 

 

 

 

  Ronald P. O’Hanley

 

    

 

 

 

 

2,900,000

 

 

 

 

    

 

 

 

 

3,944,000

 

 

 

 

    

 

 

 

 

5,300,000

 

 

 

 

    

 

 

 

 

5,035,000

 

 

 

 

 

  Andrew Erickson(2)

 

    

 

 

 

 

1,050,000

 

 

 

 

    

 

 

 

 

1,491,000

 

 

 

 

    

 

 

 

 

2,000,000

 

 

 

 

    

 

 

 

 

2,000,000

 

 

 

 

 

  Cyrus Taraporevala(2)

 

    

 

 

 

 

1,600,000

 

 

 

 

    

 

 

 

 

2,000,000

 

 

 

 

    

 

 

 

 

1,600,000

 

 

 

 

    

 

 

 

 

1,600,000

 

 

 

 

 

(1)

Mr. Bell ceased serving as our Chief Financial Officer in March 2017 and did not receive any incentive awards for 2017 performance.

(2)

The award granted to Mr. Aboaf in connection with his hiring and the promotion awards granted to Messrs. Aboaf, Erickson and Taraporevala described under “2017 Compensation Decisions—Individual Compensation Decisions” were not considered in setting annual and long-term incentive targets and are therefore excluded from this table.

The Compensation Committee’s 2017 total compensation decisions for the current 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 current NEO compensation for 2017 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 49. While the table below summarizes how the Committee views annual 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/SSGA
LTIP
     Performance-
Based RSUs
     DSAs     

 

 

  Joseph L. Hooley

 

  

 

 

 

 

2017

 

 

 

 

  

 

$

 

 

1,000,000

 

 

 

 

  

 

$

 

 

3,087,500

 

 

 

 

  

 

$

 

 

1,662,500

 

 

 

 

  

 

$

 

 

6,000,000

 

 

 

 

  

 

$

 

 

4,000,000

 

 

 

 

  

 

$

 

 

15,750,000  

 

 

 

    

 

2016

 

 

 

    

 

1,000,000

 

 

 

    

 

625,000

 

 

 

    

 

1,875,000

 

 

 

    

 

6,000,000

 

 

 

    

 

4,000,000

 

 

 

    

 

13,500,000  

 

 

    

 

 

 

 

2015

 

 

 

 

  

 

 

 

 

1,000,000

 

 

 

 

  

 

 

 

 

—  

 

 

 

 

  

 

 

 

 

—  

 

 

 

 

  

 

 

 

 

5,400,000

 

 

 

 

  

 

 

 

 

3,600,000

 

 

 

 

  

 

 

 

 

10,000,000  

 

 

 

 

  Eric W. Aboaf

 

  

 

 

 

 

2017

 

 

 

 

  

 

 

 

 

700,000

 

 

 

 

  

 

 

 

 

1,103,810

 

 

 

 

  

 

 

 

 

1,463,190

 

 

 

 

  

 

 

 

 

1,860,000

 

 

 

 

  

 

 

 

 

1,240,000

 

 

 

 

  

 

 

 

 

6,367,000  

 

 

 

 

  Ronald P. O’Hanley

 

  

 

 

 

 

2017

 

 

 

 

  

 

 

 

 

800,000

 

 

 

 

  

 

 

 

 

1,695,920

 

 

 

 

  

 

 

 

 

2,248,080

 

 

 

 

  

 

 

 

 

3,021,000

 

 

 

 

  

 

 

 

 

2,014,000

 

 

 

 

  

 

 

 

 

9,779,000  

 

 

 

    

 

 

 

 

2016

 

 

 

 

  

 

 

 

 

800,000

 

 

 

 

  

 

 

 

 

393,500

 

 

 

 

  

 

 

 

 

2,176,500

 

 

 

 

  

 

 

 

 

3,180,000

 

 

 

 

  

 

 

 

 

2,120,000

 

 

 

 

  

 

 

 

 

8,670,000  

 

 

 

 

  Andrew Erickson

 

  

 

 

 

 

2017

 

 

 

 

  

 

 

 

 

446,539

 

 

 

 

  

 

 

 

 

641,130

 

 

 

 

  

 

 

 

 

849,870

 

 

 

 

  

 

 

 

 

1,200,000

 

 

 

 

  

 

 

 

 

800,000

 

 

 

 

  

 

 

 

 

3,937,539  

 

 

 

 

  Cyrus Taraporevala

 

  

 

 

 

 

2017

 

 

 

 

  

 

 

 

 

400,000

 

 

 

 

  

 

 

 

 

600,000

 

 

 

 

  

 

 

 

 

1,400,000

 

 

 

 

  

 

 

 

 

320,000

 

 

 

 

  

 

 

 

 

1,280,000

 

 

 

 

  

 

 

 

 

4,000,000  

 

 

 

 

(1)

The compensation described in the table above, which summarizes how the Committee evaluates annual total compensation, differs from the compensation described in the Summary Compensation Table beginning on page 49 in the following respects:

 

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

 

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DVAs/SSGA LTIP. 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 and SSGA LTIP award amounts included in the Summary Compensation Table are increased to reflect this adjustment factor, which is more fully described in note (4) 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 2018 for 2017 performance is shown as 2017 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).

 

Other Awards. The award granted to Mr. Aboaf in connection with his hiring and the promotion awards granted to Messrs. Aboaf, Erickson and Taraporevala described under “2017 Compensation Decisions—Individual Compensation Decisions” were not considered in setting annual and long-term incentive targets and are therefore excluded from the Total Compensation column in this table. Such awards include equity-based components, which, under applicable SEC rules, are presented in the Summary Compensation Table in the year in which the awards are granted. The promotion awards were granted entirely in the form of performance-based RSUs in the following amounts in recognition of each executive’s promotion and role in implementing our leadership transition announced in November 2017: $4,000,000 to Mr. Erickson in November 2017, $4,000,000 to Mr. Taraporevala in November 2017 and $2,000,000 to Mr. Aboaf in February 2018.

 

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

(2)

Mr. Bell ceased serving as our Chief Financial Officer in March 2017 and did not receive any incentive awards for 2017 performance.

(3)

SSGA LTIP awards granted only to Mr. Taraporevala. He received SSGA LTIP awards for 2017 based on his role prior to his appointment to President and Chief Executive Officer of SSGA in November 2017.

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 eight times from July 2017 through March 2018 regarding 2017 NEO compensation and evaluated a broad range of corporate performance factors, individual performance updates, market information, regulatory updates and input from our shareholder engagement efforts, 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, 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 2017 executive compensation. Rather, it referenced peer group compensation data as well as performance data, but formed its own perspective on compensation for our current 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

 

 

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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, was also used to benchmark Mr. Hooley’s compensation. The Committee believes this subset contains the comparator companies most appropriate for evaluating compensation of the Chief Executive Officer position. The Committee recognized 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 current NEOs on a subjective evaluation of many factors, including those described under the heading “2017 Compensation Decisions—Total Compensation Approach.”

In 2017, State Street worked with Meridian Compensation Partners, the Committee’s independent compensation consultant, to compile market compensation data from each applicable peer group for benchmarking purposes. The peer market compensation data, based on publicly disclosed information, was supplemented with multiple compensation surveys provided by other compensation data providers. This survey data generally covered large financial services companies with whom we may compete for talent for our executive roles. In evaluating this data, the Committee considers total compensation to consist of base salary and incentive compensation. In addition to this market data, the Committee received regular updates during 2017 and the first quarter of 2018 regarding identified market trends and compensation actions at major financial services institutions.

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 2017.

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 2017, 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.

Non-GAAP Information

During its evaluation of 2017 performance, the Compensation Committee had access to financial results presented in conformity with GAAP, as well as financial results presented on an operating basis, which is a non-GAAP presentation. Management has historically believed its operating-basis presentation supports additional meaningful analysis and comparisons of trends with respect to State Street’s business operations from period to period. Management may also provide, as appropriate, additional non-GAAP measures, including capital ratios calculated under regulatory standards scheduled to be effective in the future or other standards that management uses in evaluating State Street’s business and activities. For the full-year 2016 comparative financial information, our operating-basis financial results are presented with additional adjustments to highlight the effects of the acceleration of compensation expense and aggregate reduction of accrued tax expense we experienced in the fourth quarter of 2016. This type of additional presentation is consistent with the intent of our historical operating-basis presentation. In general, our operating-basis financial results adjust our GAAP-basis financial results to both: (1) exclude the impact of revenue and expenses outside of State Street’s normal course of business, such as restructuring charges and the one-time effects of the Tax Cuts and Jobs Act of 2017; and (2) present revenue from non-taxable sources, such as interest income from tax-exempt investment securities and processing fees and other revenue associated with tax-advantaged adjustments, on a fully taxable-equivalent basis. Management has historically believed that operating-basis financial information facilitates an investor’s further understanding and analysis of State Street’s financial performance and trends, including providing additional insight into our underlying margin and profitability, in addition to financial information prepared and reported in conformity with GAAP. The tax-equivalent adjustments provide additional comparisons of yields and margins on assets and the evaluation of investment opportunities with different tax profiles. Non-GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, financial measures determined in conformity with GAAP.

 

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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. In 2017, the Compensation Committee reviewed the terms of these recourse mechanisms in light of evolving market practices and extended the clawback and forfeiture provisions applicable to current NEOs to also apply to all employees at the Executive Vice President level and broadened the circumstances that may result in clawback or forfeiture under these provisions. The Committee may continue to adjust its approach for future incentive compensation awards based on market practice and regulatory guidance.

Clawback. After vesting (if applicable) and delivery to the executive, all amounts delivered to our NEOs as incentive compensation awards, including cash incentive, performance-based RSUs, DSAs, DVAs and SSGA LTIP awards, 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 either:

 

 

if the executive engaged in fraud or willful misconduct, including in a supervisory capacity, that resulted in financial or reputational harm that is material to State Street and resulted in termination of the executive’s employment, or

 

 

if, as a result of the occurrence of a material financial restatement by State Street contained in a filing with the SEC or miscalculation or inaccuracy in financial results, performance metrics, or other criteria used in determining the amount of the award, the executive would have received a smaller or no award

Forfeiture. Before vesting and delivery to the executive, all deferred incentive compensation awards to our NEOs, including performance-based RSUs, DSAs, DVAs and SSGA LTIP awards, allow reduction or cancellation of 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 risks that resulted or could reasonably be expected to result in material 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

 

 

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

 

 

if the executive engaged in conduct that constituted a violation of State Street policies and procedures or Standard of Conduct in a manner which either caused or could have caused reputational harm that is material to State Street or either placed or could have placed State Street at material legal or financial risk

 

 

if, as a result of a material financial restatement contained in an SEC filing, or miscalculation or inaccuracy in the determination of performance metrics, financial results or other criteria used in determining the amount of the award, the executive would have received a smaller or no award

 

 

if the executive’s employment is terminated by State Street for gross misconduct

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 risks that 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

 

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Retirement Benefits

Our U.S.-based NEOs are eligible to participate in our 401(k) defined contribution retirement plan available to our U.S.-based employees generally. For 2017, the plan included 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. Mr. Hooley is the only current NEO who participates in this plan; no additional annual pay credits, however, are provided to his account.

Because pension benefits under our U.S. qualified defined benefit plan are limited by Internal Revenue Code restrictions, we maintain two supplemental pension programs, both of which are frozen. One was designed to make up for limits imposed by the qualified plan or by the Internal Revenue Code on qualified-plan benefits and was frozen along with the qualified defined pension plan. Mr. Hooley is the only current NEO who participates in this plan. The second was originally designed to provide executive vice presidents or above with competitive retirement benefits to encourage their continued employment based upon a specified percentage of compensation. It was later changed to include two separate benefit components: (1) the traditional defined benefit component, in which Mr. Hooley participates, which was frozen in 2007, and (2) a defined contribution component, which was frozen in January 2017 following an executive supplemental retirement plan market analysis, and in which only Messrs. Hooley and Erickson participate.

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

Mr. Erickson participates in our Hong Kong defined contribution Mandatory Provident Fund (MPF) and Occupational Retirement Scheme Ordinance (ORSO), which are retirement programs available to our Hong Kong employees generally, including Mr. Erickson. In aggregate, the participant contributes 5% of his or her base salary and State Street contributes an amount equal to 10% of the participant’s base salary to the MPF and ORSO. Participant and State Street contributions based on the first 5% of monthly base salaries of up to 30,000 HK$ (approximately 3,800 US$) are contributed to the MPF; participant contributions based on monthly base salary earnings above that limit, and State Street contributions that exceed 5% of the participant’s monthly base salary (or 1,500 HK$ per month if the participant’s monthly base salary is more than 30,000 HK$), are contributed to the ORSO.

Deferred Compensation

We maintain a nonqualified deferred compensation plan that allows NEOs, other executive officers and others to defer base salary and/or 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 and a State Street common stock fund. 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 “2017 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, other than for standard relocation benefits.

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 as of December 31, 2017.”

 

44    STATE STREET CORPORATION


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   Executive Compensation (continued)

 

   2018 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

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 our current 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 1 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 five-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 five 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, 2018, the holding requirement does not apply to any of the current NEOs, other than Mr. Aboaf, as each exceeds their full (not ratable) ownership guideline. Mr. Aboaf joined our Management Committee in December 2016 and exceeds his ratable ownership guideline, but is subject to the holding requirement described above, as he does not yet exceed his full ownership guideline.

 

  Name

 

 

  

Common Stock Ownership
Guideline Multiple of
Annual Base Salary

 

 

  

Executive Exceeds  

Ownership  

Guideline  

 

 

 

  Joseph L. Hooley

 

 

  

 

7

 

 

  

 

 

 

 

  Eric W. Aboaf

 

 

  

 

5

 

 

  

 

On a Pro Rata Basis

 

 

 

  Ronald P. O’Hanley

 

 

  

 

5

 

 

  

 

 

 

 

  Andrew Erickson

 

 

  

 

5

 

 

  

 

 

 

 

  Cyrus Taraporevala

 

 

  

 

5

 

  

 

 

 

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 NYSE on that date. Ownership includes unvested time-vesting shares, DSAs and earned performance-based RSUs (all 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 76.

As noted in the table above, the stock ownership of each current 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 assists our executive officers, including our NEOs, and other designated employees with access to sensitive information, to comply with U.S. federal securities laws when trading in State Street securities. The policy prohibits 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 NEOs, to enter into trading plans designed to comply with Rule 10b5-1 under the Exchange Act of 1934. Rule 10b5-1 allows executives to prearrange sales of their company’s securities in a manner designed to avoid 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 transactions in our securities under those plans. The Securities Trading Policy is in addition to the 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.

 

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   2018 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

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 2017 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 “covered employees.” Performance-based compensation paid through calendar year 2017 was not subject to the limits on deductibility of Section 162(m), provided such compensation met specified requirements, including shareholder approval of material terms of compensation. Deductibility of performance-based compensation under Section 162(m) was eliminated by the Tax Cuts and Jobs Act of 2017 effective January 1, 2018, subject to transition rules. In addition, the definition of “covered employees” under Section 162(m) was amended to expand the definition of “covered employees.” As such, effective January 1, 2018 “covered employees” include any person who was the chief executive officer or chief financial officer at any time during the tax year, as well as the next three most highly paid NEOs as of the last day of the taxable year. In addition, any person who was a covered employee as of January 1, 2017 or becomes a covered employee thereafter will remain a covered employee in perpetuity.

The Compensation Committee considers tax deductibility in making compensation decisions, to the extent deductibility is reasonably practicable and consistent with our other compensation objectives. The Compensation Committee continues to believe that shareholder interests are best served by not restricting its discretion and flexibility in structuring compensation programs, even though such programs will 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

 

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   2018 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

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

 

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LOGO

As a result of these reviews and processes, we believe that our compensation policies and practices for employees do not create risks that are reasonably likely to have a material adverse effect on us. We will continue to monitor developments in this area and may, as we believe appropriate, make related adjustments to our compensation practices.

 

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   2018 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

Summary Compensation Table

 

  Name and Principal
  Position

  (a)

 

Year

(b)

 

Salary(1)

($)

(c)

 

Bonus(2)

($)

(d)

 

Stock
Awards(3)

($)

(e)

 

Non-Equity
Incentive Plan
Compensation(4)

($)

(g)

 

Change in
Pension
Value  and
Nonqualified
Deferred
Compensation
Earnings(5)

($)

(h)

 

All Other
Compensation(6)

($)

(i)

 

Total

($)

(j)

 

 

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

($)

 

 

  Joseph L. Hooley

  2017   $1,000,000   $—     $10,000,028   $4,842,269   $3,524,957   $113,406 $ 19,480,660 $ 15,955,703

  Chairman and Chief

  Executive Officer

 

 

 

2016

2015

 


 

 

 

980,769

1,038,462

 


 

 

 

—  

—  

 


 

 

 

8,999,997

10,200,000

 


 

 

 

2,596,750

—  

 


 

 

 

2,014,620

—  

 


 

 

 

99,705

103,025

 


 

 

 

14,691,841

11,341,487

 


 

 

 

12,677,221

11,341,487

 


 

 

  Eric W. Aboaf

 

 

 

2017

 

 

 

 

700,000

 

 

 

 

892,500

 

 

 

 

1,657,398

 

 

 

 

2,648,207

 

 

 

 

—  

 

 

 

 

237,246

 

 

 

 

6,135,351

 

 

 

 

6,135,351

 

  Executive Vice

  President and Chief

  Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Ronald P. O’Hanley

 

 

 

2017

 

 

 

 

800,000

 

 

 

 

—  

 

 

 

 

5,299,912

 

 

 

 

4,068,768

 

 

 

 

—  

 

 

 

 

79,215

 

 

 

 

10,247,895

 

 

 

 

10,247,895

 

  President and Chief

  Operating Officer

 

  2016   784,615   —     4,769,962   2,682,307   —     55,948   8,292,832   8,292,832

 

  Andrew Erickson

 

 

 

2017

 

 

 

 

436,253

 

 

 

 

—  

 

 

 

 

5,430,042

 

 

 

 

1,538,168

 

 

 

 

—  

 

 

 

 

1,022,205

 

 

 

 

8,426,668

 

 

 

 

8,426,668

 

  Executive Vice

  President and Head

  of State Street   Global

  Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Cyrus Taraporevala

 

 

 

2017

 

 

 

 

400,000

 

 

 

 

—  

 

 

 

 

5,543,721

 

 

 

 

2,077,700

 

 

 

 

—  

 

 

 

 

68,615

 

 

 

 

8,090,036

 

 

 

 

8,090,036

 

  President and Chief

  Executive Officer,

  State Street Global

  Advisors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Michael W. Bell

 

 

 

2017

 

 

 

 

153,846

 

 

 

 

—  

 

 

 

 

3,999,906

 

 

 

 

—  

 

 

 

 

—  

 

 

 

 

35,111

 

 

 

 

4,188,863

 

 

 

 

4,188,863

 

  Former Executive

  Vice President and

  Chief Financial

  Officer

 

 

2016

2015


 

784,615

830,769


 

—  

—  


 

3,599,969

4,200,046


 

1,159,337

623,088


 

—  

—  


 

34,498

34,500


 

5,578,419

5,688,403


 

5,578,419

5,688,403


*

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 Executive Compensation Committee’s (ECC) decisions on total compensation year-over-year. Refer to the compensation table included in the Compensation Discussion and Analysis on page 40 for the ECC’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 the Company’s performance.

(1)

Salary column displays actual 2017 compensation paid as salary. Mr. Erickson is a Hong Kong employee and his salary was converted from HK$ to US$ using the average 2017 exchange rate of 0.128359. Mr. Bell’s 2017 salary reflects a partial year as he left State Street in March 2017. In 2016, all US employees transitioned to a one week in arrears pay schedule which resulted in only 51 weeks of salary being paid in 2016. State Street employees are paid bi-weekly. There were 27 pay periods in 2015 (vs. 26 pay periods in 2016 and 2017).

(2)

Reflects the cash payment of $892,500 that Mr. Aboaf received in February 2017 in connection with his hire in 2016 to compensate him for the loss of 2016 incentive compensation from his prior employer.

(3)

Amounts represent the grant date fair value of awards granted to the NEOs during the indicated years for DSAs and performance-based RSU 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, 2017. The amounts included for the performance-based RSUs reflect target level performance, as reflected in the 2017 Grants of Plan-Based Awards table. Please refer to the “2017 Grants of Plan-Based Awards” table for the threshold, target and maximum number of shares associated with the performance-based RSUs awarded to each NEO. The maximum payout on date of grant for each NEO’s 2017 performance-based RSUs are as follows: For grants awarded on February 27, 2017: Mr. Hooley: $8,400,036; Mr. Aboaf: $1,392,282; Mr. O’Hanley: $4,451,942; Mr. Erickson: $1,201,211; and Mr. Bell: $3,360,000; and for grants awarded on November 30, 2017: Messrs. Erickson and Taraporevala: $6,000,077.

(4)

Represents the immediate and deferred cash (granted in 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: 3.00% for DVAs awarded in February 2018 for 2017 performance, 2.50% for DVAs awarded in February 2017 for 2016 performance and 2.75% for DVAs awarded in February 2016 for 2015 performance. The adjustment factor

 

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is 5.55% for DVAs awarded in February 2018 for 2017, and was 5.16% for DVAs awarded in February 2017 for 2016 and 5.92% for DVAs awarded in February 2016 for 2015. The amounts shown in the “Non-Equity Incentive Plan Compensation” column above include these adjustments. The cash portion of incentive compensation for 2017 was awarded as follows (including the DVA adjustment factor) in the table below:

 

    2017 Non-Equity Incentive Plan Compensation

 

  Name

 

 

Immediate Cash

($)

 

 

 

DVAs (including
adjustment factor)

($)

 

 

Total

($)

 

 

  Joseph L. Hooley

 

   

 

 

 

 

$3,087,500

 

 

 

   

 

 

 

 

$1,754,769

 

 

 

   

 

 

 

 

$4,842,269  

 

 

 

 

  Eric W. Aboaf

 

   

 

 

 

 

1,103,810

 

 

 

   

 

 

 

 

1,544,397

 

 

 

   

 

 

 

 

2,648,207  

 

 

 

 

  Ronald P. O’Hanley

 

   

 

 

 

 

1,695,920

 

 

 

   

 

 

 

 

2,372,848

 

 

 

   

 

 

 

 

4,068,768  

 

 

 

 

  Andrew Erickson

 

   

 

 

 

 

641,130

 

 

 

   

 

 

 

 

897,038

 

 

 

   

 

 

 

 

1,538,168  

 

 

 

 

  Cyrus Taraporevala(A)

 

   

 

 

 

 

600,000

 

 

 

   

 

 

 

 

1,477,700

 

 

 

   

 

 

 

 

2,077,700  

 

 

 

 

  (A) 

For 2017, Mr. Taraporevala participated in a similar arrangement to the DVA referred to as the SSGA LTIP based on his role prior to his appointment as President and Chief Executive Officer of SSGA on November 7, 2017. Granting of awards, vesting and payment terms under the SSGA LTIP (including the adjustment factor of 5.55%) mirror the terms of the DVAs granted to our other current NEOs.

 

(5)

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. Mr. Hooley is the only NEO eligible to participate in our defined benefit pension plans since the other NEOs were either hired or appointed to an eligible role after January 1, 2008. For 2017, 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, 2016 to December 31, 2017, including a change to the lump sum mortality assumption related to the current mandated Internal Revenue Service (IRS) table under Code Section 417(e) 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 Mr. Hooley being older and closer to retirement. These updates resulted in increases in the actuarial present value of benefits as of December 31, 2017 for Mr. Hooley. The table below describes the change in pension value for 2017, 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 Mr. Hooley primarily due to the changes in the discount rate and lump sum conversion factor changes. For more details, refer to footnote B of the “2017 Change in Pension Value” table below.

 

    2017 Change in Pension Value

 

  Name  

Due to Age and

Proximity to Retirement(A)

($)

 

Due to Change in
Assumptions(B)

($)

 

Total

($)

 

  Joseph L. Hooley

 

 

 

$1,297,107

 

 

 

$2,227,850

 

 

 

$3,524,957  

 

  (A) 

The change in pension value due to an additional year of age was quantified by comparing (i) the December 31, 2016 present value of pension benefits with (ii) the present value of pension benefits calculated on December 31, 2017 holding the December 31, 2016 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 Mr. Hooley 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, 2017 based on the December 31, 2017 discount rates 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 lump sum mortality table change and decrease in discount rate assumption for each plan resulted in an increase in pension value.

 

(6)

The following table describes the amounts set forth for 2017 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

   

 

 

 

$45,193

 

   

 

 

 

$9,698

 

   

 

 

 

$2,395

 

   

 

 

 

 

$ —  

 

 

 

   

 

 

 

$ —  

 

   

 

 

 

$1,120

 

   

 

 

 

$25,000

 

   

 

 

 

$30,000

 

 

 

$113,406  

 

  Eric W. Aboaf

   

 

 

 

—  

 

   

 

 

 

—  

 

   

 

 

 

2,395

 

   

 

—  

   

 

 

 

12,000

 

   

 

 

 

560

 

   

 

 

 

1,346

 

   

 

 

 

220,945

 

 

 

237,246  

 

  Ronald P. O’Hanley

   

 

 

 

7,200

 

   

 

 

 

—  

 

   

 

 

 

2,395

 

   

 

 

 

—  

 

   

 

 

 

—  

 

   

 

 

 

1,120

 

   

 

 

 

13,500

 

   

 

 

 

55,000

 

 

 

79,215  

 

  Andrew Erickson

   

 

 

 

6,600

 

   

 

 

 

—  

 

   

 

 

 

2,395

 

   

 

 

 

968,604

 

   

 

 

 

—  

 

   

 

 

 

1,120

 

   

 

 

 

43,486

 

   

 

 

 

—  

 

 

 

1,022,205  

 

  Cyrus Taraporevala

   

 

 

 

6,600

 

   

 

 

 

—  

 

   

 

 

 

2,395

 

   

 

 

 

—  

 

   

 

 

 

—  

 

   

 

 

 

1,120

 

   

 

 

 

13,500

 

   

 

 

 

45,000

 

 

 

68,615  

 

  Michael W. Bell

   

 

 

 

—  

 

   

 

 

 

—  

 

   

 

 

 

2,395

 

   

 

 

 

—  

 

   

 

 

 

6,000

 

   

 

 

 

1,120

 

   

 

 

 

15,143

 

   

 

 

 

10,453

 

 

 

35,111  

 

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  (A) 

Amount includes the cost of a car and driver for Mr. Hooley. For the car and driver in 2017, the aggregate non-business incremental cost of $37,993 was determined by allocating the total cost between non-business and business use by mileage traveled. Amount also includes parking benefits for Messrs. Hooley and O’Hanley of $7,200 and for Messrs. Erickson and Taraporevala of $6,600.

  (B) 

Amount represents the cost of security at Mr. Hooley’s residence, determined by invoice amounts for alarm monitoring and maintenance.

  (C) 

Amount shown includes expatriate benefits received by Mr. Erickson 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.

  (D) 

Includes the following Company contributions: (1) $13,500 to the Salary Savings Program (SSP) for Messrs. Hooley, O’Hanley, Taraporevala and Bell, (2) $1,346 to the SSP for Mr. Aboaf, (3) $11,500 to the Management Supplemental Savings Plan (MSSP) for Mr. Hooley, (4) $1,643 to the MSSP for Mr. Bell, and (5) $43,486 for Mr. Erickson consisting of $2,303 to the Mandatory Provident Fund (MPF) and $41,183 to the Occupation Retirement Schemes Ordinance (ORSO). Mr. Erickson’s MPF and ORSO Company contributions were converted from HK$ to US$ using the December 29, 2017 exchange rate of 0.127948.

  (E) 

Includes charitable donations and the matching gift program. In 2017, 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. Aboaf, O’Hanley and Taraporevala directed contributions of $25,000 in 2017. The Company’s matching gift program will match contributions made by employees to eligible charitable and educational organizations in accordance with specified annual limits. Matching charitable contributions were made in the name of Messrs. Hooley, Aboaf, O’Hanley and Taraporevala in 2017 up to their specified limits to eligible charities of their choice under State Street’s matching gift program ($30,000 for Messrs. Hooley and O’Hanley and $20,000 for Messrs. Aboaf and Taraporevala. Amounts exclude the $5,000 benefit available to State Street employees). Additionally includes $175,945 in relocation benefits (including the standard tax gross-up on taxable relocation benefits) for Mr. Aboaf per his relocation benefits and repayment agreement in connection with his hire at State Street in December 2016 and $10,453 paid to Mr. Bell for unused vacation (which was not included as part of base salary in the Summary Compensation Table above).

CEO Pay Ratio Disclosure

The following sets out a reasonable estimate under applicable SEC regulations of the ratio of the annual total compensation of our Chief Executive Officer to the median of the annual total compensation of our other employees. The methodology and the material assumptions, adjustments and estimates we used in identifying our median employee and calculating that employee’s annual total compensation are set forth below. This methodology and the material assumptions, adjustments and estimates may differ materially from those applied by other companies, including other financial services companies, under applicable SEC regulations. As a result, the information below may not be comparable to similar information disclosed by other companies.

For 2017, we estimate that:

 

   

the median of the annual total compensation of all employees of State Street (other than Mr. Hooley), was $82,760; and

 

   

the annual total compensation of Mr. Hooley was $19,497,361

Based on the foregoing, the ratio of the annual total compensation of Mr. Hooley to the median of the annual total compensation of all other employees is estimated to be 236 to 1.

We identified our median employee—the employee at the midpoint of our employee population—based on our employee population as of December 1, 2017. State Street employees are generally eligible for base pay and incentive pay. We therefore analyzed our employee population based on these compensation elements for full year 2017. We annualized base pay of all full and part-time employees in our employee population who were hired during 2017. Similarly, for all such employees who did not receive incentive pay in 2017 due solely to their date of hire, we used a consistent methodology to impute annualized incentive pay based on level and function. For the median employee, we combined all forms of compensation that would have been reported in the “Total” column (column (j)) of the Summary Compensation Table had disclosure of the median employee’s compensation been required in that table and then added health and welfare benefits paid by State Street.

For Mr. Hooley, we used the amount reported in the “Total” column (column (j)) of our Summary Compensation Table on page 49 and then, for consistent comparability to our median employee, added health and welfare benefits paid by State Street.

 

STATE STREET CORPORATION    51


Table of Contents

   Executive Compensation (continued)

 

   2018 NOTICE OF MEETING AND PROXY STATEMENT   

 

 

 

 

2017 Grants of Plan-Based Awards

 

              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)
($)
 

  Name

  (a)

 

Award

(b)

 

Grant
Date

 

   

Threshold
($)

(c)

 

   

Target
($)

(d)

 

   

Maximum
($)

(e)

 

   

Threshold
(#)

(f)

 

   

Target
(#)

(g)

 

   

Maximum
(#)

(h)

 

     
                 

(i)

 

   

(j)

 

 

 

  Joseph L. Hooley

 

 

2017 Annual Incentive

 

           

 

$   —  

 

 

 

  $

 

3,000,000

 

 

 

  $

 

6,000,000

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

—     

 

 

 

  $

 

—    

 

 

 

 

 

Performance-Based RSU(3)

 

   

 

2/27/2017

 

 

 

   

 

   —  

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

32,420

 

 

 

   

 

81,048

 

 

 

   

 

113,468

 

 

 

   

 

—     

 

 

 

   

 

5,999,984  

 

 

 

   

 

Deferred Stock Award (DSA)(4)

 

   

 

2/27/2017

 

 

 

   

 

   —  

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

53,398   

 

 

 

   

 

4,000,044  

 

 

 

 

  Eric W. Aboaf

 

 

 

2017 Annual Incentive

 

   

 

 

 

 

   —  

 

 

 

 

 

 

 

 

 

1,700,000

 

 

 

 

 

 

 

 

 

3,400,000

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—     

 

 

 

 

 

 

 

 

 

—    

 

 

 

 

 

Performance-Based RSU(5)

 

   

 

2/27/2017

 

 

 

   

 

   —  

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

5,374

 

 

 

   

 

13,433

 

 

 

   

 

18,807

 

 

 

   

 

—     

 

 

 

   

 

994,445  

 

 

 

   

Deferred Stock Award (DSA)(6)

 

   

 

2/27/2017

 

 

 

   

 

   —  

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

8,850   

 

 

 

   

 

662,953  

 

 

 

 

  Ronald P. O’Hanley

 

 

 

2017 Annual Incentive

 

   

 

 

 

 

   —  

 

 

 

 

 

 

 

 

 

2,900,000

 

 

 

 

 

 

 

 

 

5,800,000

 

 

 

 

   

 

—  

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—     

 

 

 

 

 

 

 

 

 

—    

 

 

 

 

 

 

Performance-Based RSU(3)

 

   

 

2/27/2017

 

 

 

   

 

   —  

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

17,182

 

 

 

   

 

42,955

 

 

 

   

 

60,137

 

 

 

   

 

—     

 

 

 

   

 

3,179,959  

 

 

 

   

 

Deferred Stock Award (DSA)(4)

 

   

 

2/27/2017

 

 

 

   

 

   —  

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

28,300   

 

 

 

   

 

2,119,953  

 

 

 

 

  Andrew Erickson

 

 

 

2017 Annual Incentive

 

   

 

 

 

 

   —  

 

 

 

 

 

 

 

 

 

1,050,000

 

 

 

 

 

 

 

 

 

2,100,000

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—     

 

 

 

 

 

 

 

 

 

—    

 

 

 

 

 

 

Performance-Based RSU(3)

 

 

 

 

 

 

2/27/2017

 

 

 

 

 

 

 

 

 

   —  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

4,636

 

 

 

 

 

 

 

 

 

11,590

 

 

 

 

 

 

 

 

 

16,226

 

 

 

 

 

 

 

 

 

—     

 

 

 

 

 

 

 

 

 

858,007  

 

 

 

 

 

 

Deferred Stock Award (DSA)(4)

 

 

 

 

 

 

2/27/2017

 

 

 

 

   

 

   —  

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

7,636   

 

 

 

   

 

572,013  

 

 

 

   

 

Performance-Based RSU(7)

 

   

 

11/30/2017

 

 

 

   

 

   —  

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

22,382

 

 

 

   

 

44,763

 

 

 

   

 

67,145

 

 

 

   

 

—     

 

 

 

   

 

4,000,022  

 

 

 

 

  Cyrus Taraporevala

 

 

 

2017 Annual Incentive

 

   

 

 

 

   —  

 

 

 

 

 

 

 

1,600,000

 

 

 

 

 

 

 

 

 

3,200,000

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—     

 

 

 

 

   

 

—    

 

 

 

 

 

Deferred Stock Award (DSA)(4)

 

   

 

2/27/2017

 

 

 

   

 

   —  

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

 

 

 

 

 

—  

 

 

 

 

   

 

—  

 

 

 

   

 

20,422   

 

 

 

 

 

 

 

 

1,543,699  

 

 

 

 

   

 

Performance-Based RSU(7)

 

   

 

11/30/2017

 

 

 

   

 

   —  

 

 

 

   

 

—  

 

 

 

   

 

—  

 

 

 

   

 

22,382

 

 

 

   

 

44,763

 

 

 

   

 

67,145

 

 

 

   

 

—     

 

 

 

   

 

4,000,022  

 

 

 

 

  Michael W. Bell

 

 

 

2017 Annual Incentive

 

   

 

 

 

 

   —  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—     

 

 

 

 

 

 

 

 

 

—    

 

 

 

 

 

 

Performance-Based RSU(3)

 

 

 

 

 

 

2/27/2017

 

 

 

 

 

 

 

 

 

   —  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

—  

 

 

 

 

 

 

 

 

 

12,968

 

 

 

 

   

 

32,419