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Section 1: PRE 14A (PRE 14A)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.     )

 

Filed by the Registrant  x

 

Filed by a Party other than the Registrant  o

 

Check the appropriate box:

x

Preliminary Proxy Statement

o

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

o

Definitive Proxy Statement

o

Definitive Additional Materials

o

Soliciting Material Pursuant to §240.14a-12

 

TCF Financial 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):

x

No fee required.

o

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:

 

 

 

o

Fee paid previously with preliminary materials.

o

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:

 

 

 

 

 

 

 

 

Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.



 

 

TCF FINANCIAL CORPORATION

200 Lake Street East, Mail Code EX0-03-A

Wayzata, MN 55391-1693

(952) 745-2760

 

March 11, 2009

 

Dear Stockholder:

 

You are invited to attend TCF Financial Corporation’s Annual Meeting of Stockholders which will be held at the Marriott Minneapolis West, 9960 Wayzata Boulevard, St. Louis Park, Minnesota, on April 29, 2009, at 3:00 p.m. local time.

 

                At the Annual Meeting you will be asked to elect eight Directors, to re-approve the TCF Performance-Based Compensation Policy, to approve an increase in authorized shares under the TCF Financial Incentive Stock Program, to re-approve the performance-based goals under the TCF Financial Incentive Stock Program, and to give advisory (non-binding) approval of executive compensation.  The Board of Directors recommends that you vote “FOR” all Director nominees and in favor of the other proposals.

 

Your vote is important, regardless of the number of shares you own.  I urge you to vote now, even if you plan to attend the Annual Meeting.  Today, based on the new rules established by the Securities and Exchange Commission, TCF mailed to the majority of stockholders who are eligible to vote at the Annual Meeting a Notice of Internet Availability of Proxy Materials (the “Notice”), as opposed to the traditional hard copy proxy materials.  The Notice instructs stockholders how to access TCF’s proxy materials and vote their TCF shares online.  If you were sent this Notice but would prefer to receive traditional hard copy proxy materials, follow the instructions on the Notice to request the printed materials via mail.  If you received the traditional hard copy proxy materials in lieu of the Notice, you may vote your TCF shares online, via telephone, or via mail simply by following the instructions on the enclosed proxy card.  If you receive more than one proxy card, please vote each card.

 

 

Sincerely,

 

 

William A. Cooper

 

Chairman and Chief Executive Officer

 

 



 

 

TCF FINANCIAL CORPORATION

200 LAKE STREET EAST, MAIL CODE EX0-03-A

WAYZATA, MN 55391-1693

(952) 745-2760

 


 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD APRIL 29, 2009

 


 

The Annual Meeting of Stockholders of TCF Financial Corporation is scheduled as shown below:

 

Date:

April 29, 2009

Time:

3:00 p.m. local time

Place:

Marriott Minneapolis West

 

9960 Wayzata Boulevard

 

St. Louis Park, MN  55426

 

Meeting Agenda

 

1.               Elect eight Directors, each to serve a one-year term;

2.               Re-approve the TCF Performance-Based Compensation Policy;

3.               Approve an increase in authorized shares under the TCF Financial Incentive Stock Program;

4.               Re-approve the performance-based goals under the TCF Financial Incentive Stock Program;

5.               Approve, in an advisory (non-binding) vote, the compensation of executives disclosed in the proxy statement;

6.               Other business properly brought before the Annual Meeting, if any.

 

You are entitled to vote at the Annual Meeting if you owned TCF Financial common stock on March 2, 2009.

 

Whether or not you plan to attend the Annual Meeting of Stockholders, we urge you to vote now to make sure there will be a quorum for the Annual Meeting.  If you attend the Annual Meeting, you may revoke your proxy and vote in person.

 

Stockholders of record may vote:

 

1.               By internet (go to www.proxyvote.com).

2.               By telephone (if you received the traditional hard copy materials, call 1-800-690-6903).

3.               By mail (if you received the traditional hard copy materials, complete and return the proxy card(s) to us in the enclosed return envelope).

 

TCF is making its Proxy Statement for the 2009 Annual Meeting of Stockholders and its 2008 Annual Report to Stockholders available at www.tcfbank.com.  A free webcast of the Annual Meeting will be provided on Wednesday, April 29, 2009, at 3:00 p.m. local time.  This webcast can be accessed through the Investor Relations section of TCF’s website at www.tcfbank.com.

 

 

By Order of the Board of Directors

 

 

William A. Cooper

 

Chairman and Chief Executive Officer

 

Wayzata, Minnesota

March 11, 2009

 

 



 

TABLE OF CONTENTS

 

 

Page

 

 

About the Meeting

1

Proposal 1:

Election of Directors

3

 

Background of the Nominees and Other Directors

4

 

Corporate Governance

5

 

Board Committee Memberships and Meetings

6

 

Director Attendance

7

 

Director Independence and Related Party Transactions

10

 

Compensation of Directors

13

 

TCF Stock Ownership of Directors, Officers and 5% Owners

16

 

Were All Stock Ownership Reports Timely Filed by TCF Financial Insiders?
(Section 16(a) Beneficial Ownership Reporting Compliance)

17

 

Background of Executive Officers Who Are Not Directors

18

 

Compensation Discussion and Analysis

19

 

Compensation Committee Report

35

 

Summary Compensation Table

36

 

Grants of Plan-Based Awards in 2008

38

 

Outstanding Equity Awards at December 31, 2008

39

 

Option Exercises and Stock Vested in 2008

40

 

Pension Benefits in 2008

40

 

Nonqualified Deferred Compensation in 2008

42

 

Potential Payments Upon Termination or Change in Control

44

 

Equity Compensation Plans Approved by Stockholders

47

Proposal 2:

Re-approve the TCF Performance-Based Compensation Policy

48

Proposal 3:

Approve an increase in authorized shares under the TCF Financial
Incentive Stock Program

51

Proposal 4:

Re-approve the performance-based goals under the TCF Financial
Incentive Stock Program

57

Proposal 5:

Advisory (Non-Binding) Vote on Executive Compensation

59

Audit Committee Report

60

Additional Information

61

 



 

 

TCF FINANCIAL CORPORATION

200 LAKE STREET EAST, MAIL CODE EX0-03-A

WAYZATA, MN 55391-1693

(952) 745-2760

 


PROXY STATEMENT


 

The Board of Directors (the “Board”) of TCF Financial Corporation (“TCF Financial,” “TCF,” or the “Company”) requests your proxy for the Annual Meeting of Stockholders (the “Annual Meeting” or “Meeting”).  The proxy is being solicited on behalf of the Board and TCF Financial.  The Annual Meeting is scheduled as shown below:

 

 

Date:

April 29, 2009

 

Time:

3:00 p.m. local time

 

Place:

Marriott Minneapolis West

 

 

9960 Wayzata Boulevard

 

 

St. Louis Park, MN  55426

 

The mailing address and telephone number of the principal executive offices of TCF Financial appear at the top of this page.

 

The Notice of Internet Availability of Proxy Materials (the “Notice”) or, in some cases, this proxy statement and the accompanying form of proxy, were mailed on approximately March 11, 2009.  There were                          shares of TCF Financial’s Common Stock (“TCF Stock”) outstanding as of March 2, 2009 (the “Record Date”).

 

ABOUT THE MEETING

 

What Proposals are on the Agenda for the Annual Meeting?  Assuming a quorum is present, the proposals on the agenda are:

 

1.     Elect eight Directors, each to serve a one-year term.

2.     Re-approve the TCF Performance-Based Compensation Policy.

3.     Approve an increase in authorized shares under the TCF Financial Incentive Stock Program.

4.     Re-approve the performance-based goals under the TCF Financial Incentive Stock Program.

5.     Approve, in an advisory (non-binding) vote, the compensation of executives disclosed herein.

 

What is the Vote Required for Approval?  For the election of Directors, the eight candidates who receive the most votes (a plurality) will be elected.  Withholding authority to vote from a Director will have no effect on the election of the Director.  In accordance with NYSE listing requirements, adoption of the proposal to increase the authorized shares under the TCF Financial Incentive Stock Program requires the affirmative vote of the holders of a majority of the shares cast on such proposal, provided the total vote cast on the proposal represents more than 50% of the outstanding shares of TCF Stock entitled to vote on such matter.  For all other proposals, the proposal must be approved by a majority of the shares present in person or by proxy and entitled to vote at this Annual Meeting.  Generally, abstentions will have the effect of a vote against the proposal; however, broker non-votes (described below) will not be considered present for purposes of the proposal and therefore will have no effect on the outcome of the proposal.

 

How is a Quorum Determined?  A majority of the shares of TCF Stock outstanding as of the Record Date must be present in person or by proxy at the Annual Meeting in order to have a quorum.  Broker non-votes (described

 

 

1



 

below) of your shares are counted toward the quorum requirement.  If you vote by proxy before the Meeting but decide to withhold authority or abstain on one or more proposals, you are counted as being present at the Meeting and your vote counts toward the quorum requirement but will not be deemed to have been voted in favor of the proposal(s).

 

Who is Permitted to Vote at the Annual Meeting?  You are entitled to vote at the Annual Meeting if you owned TCF Stock on the Record Date.  Each share of TCF Stock you own as of the Record Date entitles you to one vote on each proposal at the Annual Meeting.

 

How do I (as a Stockholder) Vote?  You can vote by proxy (in advance of the Meeting) the shares of TCF Stock registered in your name by using one of these three options: (1) online by following the instructions for internet voting shown on the Notice or your enclosed proxy card; (2) by telephone by following the instructions shown for telephone voting on the internet voting site or the enclosed proxy card; or (3) by mail by marking the enclosed proxy card(s) with your instructions and then signing, dating and returning the card(s) in the enclosed return addressed envelope.  The individuals designated as proxies (see page 3) will vote your shares as “for,” “against,” “abstain,” or “withhold” on each proposal as you instruct them to.  If you submit your proxy card, but do not give any instructions, they will vote “FOR” all nominees and proposals.  If any other business comes before the Meeting (and on certain other matters as listed on the accompanying proxy card), they will vote your proxy according to their own judgment.  You can also vote at the Meeting (except stockholders listening via webcast, who do not have voting rights at the Meeting via the webcast).  If your shares are registered in your name, you can bring a completed and signed proxy card to the Meeting and turn it in.

 

If your shares are held in “street name,” such as by a stock brokerage firm or other institution, you will receive instructions from your broker describing how to vote your shares.

 

Can I Vote My Shares by Filling Out and Returning The Notice?  No.  The Notice identifies the items to be voted on at the Meeting, but you cannot vote by marking the Notice and returning it.  The Notice provides instructions on how to vote by internet, by requesting and returning a paper proxy card or voting instruction card, or by submitting a ballot in person at the Meeting.

 

Once I have Voted My Proxy, May I Revoke It and Vote At The Meeting?  Yes, your proxy is revocable and is automatically revoked if you submit a new vote.  You can vote your shares at the Meeting by written ballots available at the Meeting, even if you voted them in advance by proxy.  However, if your shares are held in street name by a stock brokerage firm or other institution, you must bring with you to the Meeting a proxy from them in your name.  Stockholders who listen to the Annual Meeting via the webcast will not be able to revoke proxies at the Meeting via the webcast.

 

Who Pays for the Expenses Related to Proxy Solicitation?  TCF Financial is paying all costs of solicitation.

 

Will My Broker Vote My Shares if I Do Not Vote?  Under the rules of the  NYSE, brokers who hold your shares in the brokerage firm’s account (in street name) have the authority to vote shares for which they do not receive instructions on all routine matters submitted for approval at this Annual Meeting.  The proposal to approve an increase in authorized  shares under the TCF Financial Incentive Stock Program and the advisory vote on executive compensation are not routine matters, so brokers do not have discretion to vote your shares held in the brokerage firm’s account without instructions from you on this proposal.  Accordingly, it is important that you provide instructions to your broker on these matters.  To vote shares held in street name at the Meeting, you should contact your broker before the Meeting to obtain a proxy form in your name.

 

What is the Effect of Broker Non-Votes?  A “broker non-vote” occurs when your broker or other institution holding title to your shares as your nominee (in street name) does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received voting instructions from you.  Generally, if a broker returns a “non-vote” proxy, then the shares covered by such a “non-vote” proxy will be counted as present for purposes of determining a quorum but will not be counted in determining the outcome of the vote on that matter at the Annual Meeting.

 

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May Stockholders Submit Proposals or Nominate Directors for This Meeting?  The deadline for submitting proposals or nominations was February 28, 2009, ten days after TCF Financial provided public notice of the Annual Meeting date.  No stockholder nominations or proposals were submitted by that date.

 

What is TCF’s Policy on Stockholder Nominations?  Please refer to “Director Nominations” on page 5 for a description of TCF’s policy on stockholder nominations.

 

 

PROPOSAL 1:  ELECTION OF DIRECTORS

 

At last year’s annual meeting, stockholders approved a proposal to amend and restate TCF Financial’s Certificate of Incorporation to phase out classification of the Board, eventually leading to the annual election of all Directors.  Accordingly, the Directors in Class II will continue to serve for the remainder of their existing terms until 2010.  All other Directors, whose terms of office expire with this Meeting (“Nominees”), are being nominated for election to a one-year term.  Unless instructed otherwise by the person submitting the proxy, all proxies received will be voted in favor of the Nominees listed in the following chart.  All Nominees agree they will serve if elected.  If any Nominee becomes unable to serve prior to the Annual Meeting, the person to whom your proxy gives the voting rights (Ralph Strangis and/or Neil W. Brown) will vote for a replacement nominee recommended by the Nominating Committee of the Compensation/Nominating/Corporate Governance Committee.

 

Name

 

 

Position(s) with TCF Financial:

 

 

Age

 

Director
Since *

NOMINEES FOR ELECTION AS DIRECTORS

 

 

 

 

 

 

 

William F. Bieber

 

Director

 

66

 

1997

Theodore J. Bigos

 

Director

 

56

 

2008

William A. Cooper

 

Director, Chairman and Chief Executive Officer

 

65

 

1987

Thomas A. Cusick

 

Director

 

64

 

1988

Gregory J. Pulles

 

Director, Vice Chairman and Secretary

 

60

 

2006

Gerald A. Schwalbach

 

Director

 

64

 

1999

Douglas A. Scovanner

 

Director

 

53

 

2004

Barry N. Winslow

 

Director, Vice Chairman

 

61

 

2008

 

 

 

 

 

 

 

DIRECTORS WHOSE TERMS DO NOT EXPIRE IN 2009

 

 

 

 

 

 

 

Class II — Term Expires 2010

 

 

 

 

 

 

Luella G. Goldberg

 

Director

 

72

 

1988

George G. Johnson

 

Director

 

66

 

1998

Ralph Strangis

 

Director

 

72

 

1991

 

*  Excludes Director service with subsidiaries, predecessor companies or companies merged with TCF Financial.

 

Information About Directors and the Board.  The number of Directors on the Board at any given time may range from seven to twenty-five.  Within these limits, the Board sets the number of Directors from time to time.  Director Peter L. Scherer resigned from the Board in December 2008.  Director Rodney P. Burwell’s term ends as of the date of the Annual Meeting and he is not standing for re-election.

 

What Is The Board’s Recommendation On Voting For Directors?  The Board unanimously recommends that TCF Financial stockholders vote “For” all the Nominees listed above.

 

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BACKGROUND OF THE NOMINEES AND OTHER DIRECTORS

 

The following describes the last five years (or longer) of business experience of the Nominees proposed for election as Director as well as other Directors whose terms do not expire this year.  There is no family relationship between any of the Nominees, Directors or executive officers of TCF Financial.  TCF National Bank (“TCF Bank”) is a wholly-owned national bank subsidiary of TCF Financial.

 

NOMINEES FOR ELECTION AT THIS MEETING

 

WILLIAM F. BIEBER has been a Director of TCF Financial since 1997.  He is Chairman of the Board and owner of ATEK Companies, Inc. (fka Acrometal Companies, Inc.), a Minnesota-based organization supplying various products to the commercial and industrial marketplace, a position he has held since 1984.  In addition, he is the owner and President of Acrometal Management Corporation, and owner of AcroTech Industries, Inc., a Texas-based operation supplying various products and services to the commercial and industrial marketplace.

 

THEODORE J. BIGOS has been a Director of TCF Financial since October 2008.  He is the owner of Bigos Management, Inc., an apartment ownership and management firm.  He has been involved in the ownership or operation of apartment complexes for the past 35 years.

 

WILLIAM A. COOPER has been a Director and the Chairman of the Board of TCF Financial since its formation in 1987.  He was the Chief Executive Officer of TCF Financial from 1987 to 2005 and was Chief Executive Officer of TCF Bank from 1985 to 1993.  Effective December 31, 2005, he retired as an employee and Chief Executive Officer of TCF Financial but continued to serve as non-executive Chairman.  Effective July 26, 2008, Mr. Cooper was again elected Chief Executive Officer of TCF Financial.  He is also a director and controlling shareholder of Cooper State Bank, a state bank organized under the laws of the State of Ohio.

 

THOMAS A. CUSICK has been a Director of TCF Financial since 1988.  He was Chief Operating Officer of TCF Financial from 1997 to 2002 and Vice Chairman from 1993 to 2002.  Prior to 1993, he had been President of TCF Financial since its formation in 1987.  He also served as Chief Executive Officer of TCF Bank from 1993 to 1996.  Mr. Cusick retired as an executive of TCF Financial in 2002.

 

GREGORY J. PULLES has been a Director of TCF Financial since 2006.  He was the General Counsel of TCF Financial since its formation in 1987 until February 2009, Secretary of TCF Financial since 1989, and a Vice Chairman of TCF Financial since 1993.  He has been an Executive Vice President of TCF Bank since 1989.  He has also held various other positions with TCF Bank:  Secretary (1989 to 1995) and General Counsel (1985 to 1993).

 

GERALD A. SCHWALBACH has been a Director of TCF Financial since 1999.  He is currently the Chairman of the Board of Spensa Development Group, LLC, and related companies, all of which are engaged in the real estate business.  Prior to June 2003, he was Chairman of the Board of Two S Properties, Inc., Superior Storage I, LLC, and related companies.  Since 1997, he has been a director of C.H. Robinson Worldwide, Inc., a logistics and transportation company.  He was a director of BORN Information Systems, Inc., a computer consulting firm, from 1998 to 2004.

 

DOUGLAS A. SCOVANNER has been a Director of TCF Financial since 2004.  He has been Executive Vice President and Chief Financial Officer of Target Corporation, a general merchandise retailer, since 2000.  He was Senior Vice President and Chief Financial Officer of Target Corporation from 1994 to 2000.  Before joining Target Corporation, he was Senior Vice President of Finance for Fleming Companies, Inc.  He also served as Vice President and Treasurer of Coca-Cola Enterprises, as well as various positions with The Coca-Cola Company.

 

BARRY N. WINSLOW has been a Director of TCF Financial since July 21, 2008.  In July 2008, he became a Vice Chairman of TCF Financial.  From January 2008 to July 2008, he was a self-employed consultant.  He previously held the position of Chief Operating Officer of TCF Financial Corporation (2006 to 2007).  He was Chief Executive Officer of TCF Bank from 2001 to 2005 and was also President of TCF Bank from 1998 to 2005.  He also held various positions with TCF affiliates:  President of TCF Bank Michigan (1995 to 1998); and President and Chief Executive Officer of TCF Bank Illinois (1993 to 1995).  He is also a director of Cooper State Bank, a state bank organized under the laws of the state of Ohio.

 

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OTHER DIRECTORS (NOT NOMINEES AT THIS MEETING)

 

LUELLA G. GOLDBERG has been a Director of TCF Financial since 1988.  She has been a director of Hormel Foods Corporation since 1993, and served as a director of Reliastar Financial Corp. from 1976 to 2000.  From 2001 to 2008, she served on the Supervisory Board of ING Group, Amsterdam, the Netherlands, which acquired Reliastar Financial Corporation in 2001.  She became a director of Communications Systems, Inc. in 1997, and served on the Board of Hector Communications Corporation from 2002 to 2006.

 

GEORGE G. JOHNSON has been a Director of TCF Financial since 1998.  He is Managing Director of George Johnson & Company, a certified public accounting firm which he founded in 1971, and George Johnson Consultants, a consulting firm which he founded in 1995.  Mr. Johnson is a certified public accountant.

 

RALPH STRANGIS has been a Director of TCF Financial since 1991.  He is a founding member of the Minneapolis law firm of Kaplan, Strangis and Kaplan, P.A.  He is also a director of OptumHealthBank, Inc., an affiliate of UnitedHealth Group; Sit Investments Associates, Inc.; and Cooper State Bank.

 

CORPORATE GOVERNANCE

 

TCF has established and operates within a comprehensive plan for Board of Directors membership/director independence, committee membership, and ethical conduct.  TCF’s Corporate Governance Guidelines may be accessed through the TCF website at www.tcfbank.com (click on “About TCF,” then click on “Corporate Governance”) or may be obtained from TCF’s Corporate Secretary at the TCF address on page 1.  Included in the Corporate Governance Guidelines are the criteria used to determine whether a Director is independent.

 

TCF’s corporate governance is designed to be within the mainstream for our industry.  TCF has a small- to medium-sized Board of Directors that typically meets at least quarterly in January, April, July, and October.  TCF’s Board has four committees: Audit, Compensation/Nominating/Corporate Governance, Shareholder Relations/De Novo Expansion (renamed “Shareholder Relations, Capital, and Expansion Committee” in January 2009), and an Executive Committee.  Directors are elected by a plurality vote of the stockholders, typically achieving substantially more than a majority of the votes cast.

 

Director Nominations.  The Nominating Committee of the Compensation/Nominating/Corporate Governance Committee is responsible for Director nominations.  The Nominating Committee consists entirely of independent Directors as determined by the Board under applicable rules.  The Nominating Committee’s charter is included in the Compensation/Nominating/Corporate Governance Committee Charter which may be accessed through the TCF website at www.tcfbank.com (click on “About TCF,” then click on “Corporate Governance”) or may be obtained from TCF’s Corporate Secretary at the TCF address on page 1.  The Nominating Committee will seek out nominees for new Directors as vacancies become available using the following criteria:  A majority of the Directors must be independent, as determined by the Board under applicable rules; nominees shall possess expertise in general business matters and in such other areas as are relevant to Committees on which they are expected to serve (such as financial expertise for Directors expected to serve on the Audit Committee); and nominees shall be individuals with the background, character, skills and expertise such that they will meaningfully contribute to the success of the Company and its operations.  Stockholders may submit nominations to the Nominating Committee for consideration at next year’s Annual Meeting prior to the deadlines set forth on page 61.  Any such nomination should include the information specified in Article II, Section 13 of the Bylaws, a copy of which may be obtained from TCF’s Corporate Secretary at the TCF address on page 1.  Nominations should be mailed to the attention of the Compensation/Nominating/Corporate Governance Committee, c/o TCF’s Corporate Secretary at the TCF address on page 1.  The Nominating Committee will evaluate all recommended nominees based on the criteria set forth above, and especially based on whether they will meaningfully contribute to the success of the Company and its operations.  TCF has not, to date, paid any fees to any firm in connection with locating or evaluating any Director candidates.

 

Communications with Directors.  TCF’s process for stockholder communications with Directors is as follows:  All communications should be in writing and sent to the Directors, to the Chair of the Compensation/Nominating/ Corporate Governance Committee, as presiding Director, or to a specified Director, c/o TCF’s General

 

5



 

Counsel/Corporate Secretary at the TCF address on page 1.  An interested party desiring to communicate directly with the presiding director or the non-management Directors should follow the same process, but address the communication to the Chair of the Compensation/Nominating/Corporate Governance Committee, as presiding director, or to “Non-Management Directors of TCF.”  Each communication is required to include information allowing TCF to verify the sender and the sender’s status as well as contact information for the sender (name, tax identification number (if applicable), address and phone number).  Only interested parties who identify the nature of their interest in TCF will be entitled to communicate directly with the Directors.  Communications requiring special expertise will be forwarded to the Chair of the relevant Board Committee.  All communications will be initially reviewed by an internal TCF response team which will screen the communication for appropriateness.  If the communication is deemed not viable, the team will notify the sender promptly.  For viable communications, the team will conduct research and provide it to the Director(s) to whom the communication is directed, along with the communication.  Directors will be advised of all communications received, including those deemed not viable, and all non-management Directors will receive a copy of any communication addressed to them.  Directors will generally respond to all viable communications within six months, although in some circumstances additional time may be required.

 

Regular Separate Non-Management Director MeetingsThe non-management Directors, all of whom except Mr. Cusick are independent under NYSE rules, meet independently in executive sessions on the same days as and immediately after the regularly scheduled meetings of the Board.  The Chair of the Compensation/ Nominating/Corporate Governance Committee presides at these meetings.  Once a year, the session is limited to independent Directors.

 

Code of Ethics.  TCF has adopted a Code of Ethics that applies to TCF’s principal executive officer, principal financial officer, and principal accounting officer (the “Code of Ethics for Senior Financial Management”), and a code of ethics for officers, employees, and Directors generally (“Code of Ethics Policy”).  Copies of both Codes may be accessed through the TCF website at www.tcfbank.com (click on “About TCF,” then click on “Corporate Governance”) or may be obtained from TCF’s Corporate Secretary at the TCF address on page 1.  Waivers of either Code for Directors or executive officers will be posted on that website as well as changes or updated copies, as required.  To date, TCF has not issued any waivers of either Code.

 

Board Committee Memberships and Meetings.  The business, property and affairs of TCF Financial are managed by or under the direction of the Board.  The Board met six times in 2008.  All Board members are encouraged to attend all Committee meetings of which they are a member.  The following chart identifies the standing Board Committees (those which meet regularly) including those with audit, compensation, and nominating responsibilities; the members of each standing Committee; and the number of meetings held in 2008.  In addition, there was a duly-elected Executive Committee of the Board consisting of William Cooper, Lynn Nagorske (until his retirement in July 2008), Ralph Strangis, and Luella Goldberg.  The Executive Committee did not meet during 2008.

 

6



 

Board Committee Memberships and Meetings in 2008

 

Committee Name

 

Members

 

Principal Responsibilities

 

Number of Meetings

Audit

 

Gerald A. Schwalbach, Chairman (1)
Luella G. Goldberg(2)
George G. Johnson(1)
Douglas A. Scovanner(1)

 

·        Relations with internal and external accountants

·        Reviewing audit functions and controls

·        Reviewing financial reporting

·        Reviewing asset quality

·        Overseeing compliance

 

7

 

 

 

 

 

 

 

Shareholder Relations/De Novo Expansion Committee

 

Douglas A. Scovanner, Chairman
William F. Bieber
Theodore J. Bigos(3)
Rodney P. Burwell
Thomas A. Cusick
Luella G. Goldberg
George G. Johnson
Peter L. Scherer(4)
Gerald A. Schwalbach
Ralph Strangis

 

·        Reviewing dividend recommendations

·        Reviewing stock buyback program

·        Reviewing merger and acquisition activity

·        Increasing stockholder value

·        Reviewing De Novo banking strategy

·        Reviewing criteria to select branch sites

·        Reviewing branch profitability

 

4

 

 

 

 

 

 

 

Compensation/ Nominating/Corporate Governance

 

Ralph Strangis, Chairman
William F. Bieber
Theodore J. Bigos(3)
Rodney P. Burwell
Luella G. Goldberg
Gerald A. Schwalbach

 

·        Recommending and approving personnel-related items

·        Awarding stock options and stock grants

·        Executive compensation

·        Director nominations

·        Corporate Governance supervision certifying TCF Financial’s compliance with CPP requirements (see “TCF’s Participation in the CPP” on page 27)

 

5


(1)          Messrs. Johnson, Scovanner, and Schwalbach have been designated as Audit Committee financial experts.

(2)   Ms. Goldberg was elected to the Audit Committee in July 2008.

(3)   Mr. Bigos was elected to the Board and this committee in October 2008.

(4)     Mr. Scherer resigned from the Board and this committee in December 2008.

 

Director Attendance.  During 2008, all Directors attended at least 75% of the meetings of the Board and of the committees on which they serve.  TCF requests Directors to attend the Annual Meeting if their schedules permit.  The general practice on Board attendance at the Annual Meeting has been that the Directors standing for election attend the Meeting, as well as others whose schedules permit them to attend.  Seven Directors attended the 2008 Annual Meeting.

 

Compensation/Nominating/Corporate Governance Committee Charter.  All members of the Compensation/ Nominating/Corporate Governance Committee are listed above and are independent under the standards outlined on page 10.  The Committee operates under a formal charter that may be accessed through the TCF website at www.tcfbank.com (click on “About TCF,” then click on “Corporate Governance”) or may be obtained from TCF’s Corporate Secretary at the TCF address on page 1.

 

7



 

Scope of Authority of Compensation Committee.  The Compensation Committee is one of the three component Committees of the Compensation/Nominating/Corporate Governance Committee.  Full authority is delegated from the Board to the Committee to act on the following matters without Board approval:

 

·                  Approval of “Compensation Discussion and Analysis” section of proxy statement

·                  Review of the overall adequacy, effectiveness and compliance of benefit programs

·                  Review of pay plans to ensure that they are consistent with the Company’s stated compensation philosophy

·                  Review of the performance of executive officers

·                  Approval of long-term and short-term incentive plans and goals for TCF Financial executive officers

·                  Approval of incentive awards and salary for TCF Financial executive officers

·                  Approval of severance agreements and employment contracts (including change-in-control provisions) for TCF Financial executive officers, except that any employment contract or severance agreement for the CEO shall be approved by the full Board

·                  Approval of an annual summary of CEO perquisites and review an annual summary of other executive perquisites

·                  Supervision of the administration of the Pension Plan and TCF Employees Stock Purchase Plan

·                  Approve amendments as needed (except where the plan requires full Board approval)

·                  Selection of the trustee, funding agents, investment managers and other similar asset managers for the trust funds

·                  Serve as the Advisory Committee for the TCF Employees Stock Purchase Plan, directing the vote of shares for which participants in the plan do not provide direction

·                  Exercise of all other responsibilities as provided in the plans

·                  Supervision of the administration of the Incentive Stock Program, Supplemental Employee Retirement Plan, and the Deferred Compensation Plans

·                  Approval of amendments as needed

·                  Issuance of awards (generally restricted stock grants)

·                  Exercise of all other administrative and interpretive authority under the plans

·                  Exercise of all other responsibilities as provided in the plans

·                  Supervision of the administration of the Directors Plans

·                  Approval of amendments as needed

·                  Issuance of awards under the Directors Stock Program

·                  Exercise of all other responsibilities as provided in the plans

 

Authority is delegated to the Compensation Committee to review the following matters and to recommend proposals for action by the full Board:

 

·                  Election of officers

·                  Compensation and employment contracts for the TCF Financial CEO, including change in control arrangements

·                  Management succession plans for TCF Financial

 

The Committee also has authority to certify TCF Financial’s compliance with the requirements of the CPP.  (See “TCF’s Participation in the CPP” on page 27).

 

Delegation of Authority by Compensation Committee.  The Compensation Committee may from time to time delegate duties and authority to a subcommittee consisting of members who meet the independence requirements under Internal Revenue Code Section 162(m) and Securities and Exchange Commission Rule 16b-3 (“Independent Subcommittee”).  Whenever the following discussion concerns performance-based compensation or awards of restricted stock or stock options, references to the Compensation Committee mean the Independent Subcommittee so established under Internal Revenue Code Section 162(m) and Securities and Exchange Commission Rule 16b-3.

 

Compensation Committee Use of Consultants.  The Compensation Committee has authority to retain consulting firms for the purpose of evaluating Director, Chief Executive Officer, or executive compensation, but to date it has not done so.  TCF has retained Towers Perrin to provide advice and peer group information to assist in developing the terms of restricted stock and stock option awards, incentive compensation plans, and overall compensation amounts.  Towers Perrin has also provided advice on the Committee’s process for determining whether executive

 

8



 

incentive compensation encourages unnecessary or excessive risk that could threaten the value of the Company.  See “TCF’s Participation in the CPP” on page 27.

 

Compensation Committee’s Process For Determining Executive and Director Compensation.  The Committee has regular meetings four times per year in January, April, July, and October, and occasionally has additional special meetings as needed.  Each year in January, the Committee considers whether any executive salaries should be adjusted and the terms of any executive bonus programs for the year.  The Committee also considers at that time whether any restricted stock or stock options should be awarded.  The Committee may delegate decisions concerning compensation matters to the Independent Subcommittee and will delegate any decisions concerning performance-based compensation under Internal Revenue Code Section 162(m) to the Independent Subcommittee.  After the year is completed, the Committee or Independent Subcommittee certifies the performance achieved and any compensation earned for performance-based compensation awards.  The Chief Executive Officer makes recommendations to the Committee or Independent Subcommittee concerning compensation for other (non-CEO) executive compensation.  Director compensation is reviewed from time to time on an information basis by the Chief Executive Officer and Chair of the Committee.  Their recommendations concerning any change in Director compensation are referred to the Committee and the Board.

 

Compensation Committee Interlocks and Insider Participation.  Directors who served on the Compensation Committee in 2008 were Messrs. Bieber, Bigos, Burwell, Schwalbach, and Strangis, and Ms. Goldberg.  None of these Directors has ever served as an officer or employee of TCF or any of its subsidiaries and the Board has determined that all of them were independent for 2008 under standards outlined on page 10.  Certain transactions between TCF and Directors Bieber, Bigos, Burwell, Goldberg, Schwalbach, and Strangis are disclosed on page 10 under the caption “What Transactions Were Considered Non-Material?”.

 

Audit Committee Charter.  All members of the Audit Committee are listed on page 7 and are independent under the standards outlined on page 10.  The Audit Committee operates under a formal charter that may be accessed through the TCF website at www.tcfbank.com (click on “About TCF,” then click on “Corporate Governance”), or may be obtained from TCF’s Corporate Secretary at the TCF address on page 1.

 

9



 

DIRECTOR INDEPENDENCE AND RELATED PARTY TRANSACTIONS

 

How Does the Board Determine Which Directors Are Independent?  Section 303A of the NYSE Listed Company Manual (the “NYSE Rule”), relating to corporate governance and director independence, requires the TCF Board of Directors (and all other NYSE-listed companies) to have a majority of Directors who are independent and requires the Board to make an affirmative determination that a Director has “no material relationship” with TCF for the Director to qualify as independent.  The NYSE Rule, as incorporated into the regulations of the Securities and Exchange Commission (“SEC”), identifies certain transactions or relationships which automatically disqualify a Director from being independent.  In the case of transactions or relationships with a Director’s business, annual payments of more than the greater of $1,000,000 or 2% of the gross revenues of the Director’s business are automatically disqualifying.

 

As permitted by the NYSE Rule, the Board of Directors has adopted the following categorical standards to assist it in determinations of independence.  Transactions or relationships falling within a categorical standard adopted by the Board are deemed automatically to be non-material.

 

·                  Regulation O-Approved Commercial Loans from TCF Bank to a Director’s Business.  Loans from TCF Bank or a subsidiary to a Director’s company are not material if they are not automatically disqualifying under the NYSE Rule, are subject to approval under Federal Reserve Board Regulation O, and TCF has not classified them as being in default.

·                  Transactions or Relationships Which Are Beneath Certain Thresholds and Are Not Automatically Disqualifying.  Transactions or relationships between TCF and a Director and/or the Director’s business are not material if they are not automatically disqualifying under the NYSE Rule, and the transaction (including employment) amounts are not in excess of $120,000 in a calendar year.

·                  Retail Banking Relationships: Home Mortgages, Consumer Loans and Retail Deposit Accounts.  Home mortgages, consumer loans and retail deposit accounts at TCF for a Director or immediate family members of the Director are not material if they are not automatically disqualifying under the NYSE Rule and are on ordinary retail consumer terms and conditions.

·                  Stockholder Ownership under 10%; Limited Partnerships; Service as Executive Officer.  A Director’s ownership of less than 10% equity interest in a company, or a limited partnership interest in a company, is not sufficient to cause the company to be considered as an indirect interest of the Director for purposes of determining material business relationships between the Director and TCF.  However, a Director’s service as executive officer of a company is sufficient to cause the company to be considered as an indirect interest of the Director for purposes of determining material business relationships between the Director and TCF, even if the Director has ownership of less than 10% equity interest in a company.

 

What Transactions Were Considered Non-Material?  During 2006 through 2008, TCF had transactions or business relationships with certain Directors or their related companies or immediate family members, all of which were determined by the Board to be not material for purposes of Director independence.

 

Regulation O-Approved Commercial Loans, Consumer Loans, and Retail Banking Accounts.  The following transactions and relationships were reviewed by the Board and determined to not constitute a material relationship for purposes of Director independence, based on the categorical standards described above.  All commercial loans and leases and all home mortgages and consumer loans were made, in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and do not contain more than the normal risk of collectibility or present other unfavorable features.  All such loans and leases are approved by the Board of Directors when required by Federal Reserve Board Regulation O.

 

·                  The following Directors or their related companies have, or during 2006 through 2008 had, commercial loans or leases with TCF:  Messrs. Bieber, Bigos, Scherer (who is now resigned from the Board), and Strangis.  The following Directors or their related companies have, or during 2006 through 2008 had, commercial deposit accounts with TCF:  Messrs. Bieber, Bigos, Burwell, Scherer, and Strangis.

·                  The following Directors have, or during 2006 through 2008 had, retail deposit accounts and/or consumer loans at TCF, all of which are on ordinary retail consumer terms and conditions:  Mr. Bigos, Mr. Burwell, Mr. Cooper, Mr. Cusick, Ms. Goldberg, Mr. Johnson, Mr. Pulles, Mr. Scherer (who is now resigned from the Board), Mr. Scovanner, Mr. Strangis, and Mr. Winslow.

 

 

10



 

Other Business Relationships.  The following additional transactions and business relationships were reviewed and determined by the Board to be not material for purposes of Director independence.

 

·                  Silvertree Hotel of Snowmass Limited Partnership (“Silvertree Hotel”) provided lodging services to TCF for a business event in 2009.  Mr. Burwell is the principal owner of a partnership which owns the Silvertree Hotel.  Total fees received by the Silvertree Hotel in 2009 were approximately $200,000 (with an advance deposit being made in 2008).  The Board of Directors has reviewed this relationship and affirmatively determined (with Mr. Burwell abstaining) that it does not constitute a material relationship between Mr. Burwell and the Company for purposes of Director independence because the payments were not so significant as to compromise his exercise of independent judgment as a Director, and therefore did not affect Mr. Burwell’s status as an independent Director.  There were no other fees paid to the Silvertree Hotel in 2006, 2007, or 2008.

·                  During 2006 through 2008, the firm of Kaplan, Strangis and Kaplan, P.A. (“KSK”) provided legal services to TCF (including its subsidiaries).  Mr. Strangis is a member of the firm of KSK.  Total fees paid by TCF to KSK in 2006, 2007, and 2008 were approximately $322,570, $340,930, and $582,000, respectively.  During 2006-08, CTS Corporate Travel Solutions (“CTS”) provided certain travel-related services to TCF (including its subsidiaries).  Mr. Strangis’ spouse is an officer, director and minority stockholder of CTS.  Total payments by TCF to CTS in 2006, 2007, and 2008 were approximately $169,420, $140,160, and $118,500, respectively.  The Board of Directors has reviewed these relationships and affirmatively determined (with Mr. Strangis abstaining) that they do not constitute a material relationship between Mr. Strangis and the Company for purposes of Director independence because: the extent to which Mr. Strangis is expected to benefit from the payments is not so significant as to compromise his exercise of independent judgment as a Director; the payments were consistent with the range of payments from TCF to KSK and CTS in prior years; the payments and the transactions for which they are made were negotiated on an arm’s length basis; the payments are a small percentage of the Company’s total expenses; in the case of CTS, the Director’s interest is indirect and insignificant; and in the case of KSK, the Company deals with many law firms in addition to KSK.  Therefore, the Board determined that the relationships did not affect Mr. Strangis’ status as an independent Director.  The Board of Directors periodically reviews those longstanding and ongoing relationships and considers the amounts and terms of the arrangements to be reasonable and appropriate for the services provided.

·                  Several Directors are investors in Cooper State Bank, a state bank organized under the laws of Ohio, of which Mr. Cooper is controlling shareholder and Mr. Strangis was an organizer.  In addition to Mr. Cooper, Mr. Bigos, Mr. Burwell, Ms. Goldberg, Mr. Pulles, Mr. Schwalbach, Mr. Strangis, and certain members of TCF’s management are shareholders in the bank.  Three current members of TCF’s management are also directors of Cooper State Bank.  The Board of Directors has reviewed these relationships and affirmatively determined (with each affected Director abstaining from his or her own determination) that they do not constitute material relationships between Mr. Bigos, Mr. Burwell, Ms. Goldberg, Mr. Schwalbach, or Mr. Strangis, and the Company for purposes of Director independence because: these transactions are not so significant as to compromise their exercise of independent judgment as Directors; the transactions are not with the Company or Company management; there are no material transactions between the Company and Cooper State Bank (Cooper State Bank owns shares of trust preferred capital of TCF Financial); Cooper State Bank is not a competitor of TCF (its market area does not overlap TCF’s); and the investments are not otherwise so significant as to compromise the Director’s exercise of independent judgment as a Director.

·                  Ms. Goldberg’s son is employed by the Company in a non-executive capacity.  The Board has reviewed this relationship and affirmatively determined (with Ms. Goldberg abstaining) that it does not constitute a material relationship between Ms. Goldberg and the Company for purposes of Director independence, in that he is employed in a non-executive position and has not received during any twelve-month period within the last three years more than $120,000 in direct compensation from the Company.

·                  The Board has also reviewed Director ownership of shares of TCF common stock and/or trust preferred capital and affirmatively determined (with affected Directors abstaining) that such ownership does not constitute a material relationship between any of those Directors and the Company for purposes of Director independence, in that no such Director owns 10% or more of any voting class of outstanding TCF securities.

 

 

11



 

Which Directors are Independent?  The NYSE evaluation of director independence is based on a three-year look-back period.  On the basis of the foregoing categorical standards and review of the transactions and relationships between Directors and TCF over the years 2006 through 2008, the Compensation/Nominating/Corporate Governance Committee and the Board of Directors affirmatively determined in January 2009 that the following Directors have no material relationship with TCF and are considered to be independent:  Mr. Bieber, Mr. Bigos, Mr. Burwell, Ms. Goldberg, Mr. Johnson, Mr. Schwalbach, Mr. Scovanner, and Mr. Strangis.  The Compensation/Nominating/ Corporate Governance Committee and Board also determined that Mr. Scherer, prior to his resignation as a Director in December 2008, was independent.  The Board of Directors determined that the following Directors are not independent:  Mr. Cooper (TCF’s Chief Executive Officer), Mr. Pulles (TCF’s Vice Chairman and Secretary), Mr. Winslow (TCF’s Vice Chairman), and Mr. Cusick (TCF’s former Chief Operating Officer), because current and former executives receiving compensation for prior services are deemed to be non-independent under the NYSE Rule.

 

Related Party Transaction Approval Process.  By written policy and regulation, loans to Directors, executive officers or their immediate family members are submitted for review to the Board of Directors of TCF Bank as and to the extent required by Regulation O.  Transactions with Directors, executive officers or their immediate family members that present a possible conflict of interest under TCF’s written Code of Ethics are reviewed by TCF’s General Counsel and submitted to the TCF Financial Board of Directors where appropriate or required under the Code of Ethics.  By unwritten policy, all other transactions in which TCF is a participant with Directors, Director nominees and related companies of Directors, executive officers, or their immediate family members that are reportable in the proxy statement are reported to the Audit Committee and, for transactions involving independent Directors, the Compensation/Nominating/Corporate Governance Committee and the Board.  All such reports are in writing and maintained with the records of the applicable committee or Board meetings.  The Board of Directors and committees are responsible for reviewing any transactions submitted to them for approval, denial, ratification or termination.

 

 

12



 

COMPENSATION OF DIRECTORS

 

The following table shows TCF’s compensation for outside Directors in 2008 including cash compensation and other non-cash expense.  Messrs. Cooper, Nagorske, and Pulles are Named Executives of TCF Financial and do not receive any compensation for their service as Directors.  Accordingly, Messrs. Cooper, Nagorske, and Pulles are not included in the following table.  (See the Summary Compensation Table on page 36.)

 

Director Compensation

 

Name

 

 

Fees Earned
or Paid in
Cash

 

 

Stock Awards
(1) (2)

 

 

Change in Pension Value and
Nonqualified Deferred
Compensation Earnings
(3)

 

 

All Other Compensation
(4)

 

 

Total

 

William F. Bieber

 

 

$ 30,500

 

 

$2,007

 

 

$20,000

 

 

$         0

 

 

$52,507

 

 

 

Theodore J. Bigos

 

 

$  8,000

 

 

$   455

 

 

$20,000

 

 

$         0

 

 

$28,455

 

 

 

Rodney P. Burwell

 

 

$30,000

 

 

$2,007

 

 

$20,000

 

 

$10,000

 

 

$62,007

 

 

 

Thomas A. Cusick

 

 

$28,000

 

 

$2,007

 

 

$20,000

 

 

$         0

 

 

$50,007

(5)

 

 

Luella G. Goldberg

 

 

$34,500

 

 

$2,007

 

 

$20,000

 

 

$10,000

 

 

$66,507

 

 

 

George G. Johnson

 

 

$34,000

 

 

$2,007

 

 

$20,000

 

 

$10,000

 

 

$66,007

 

 

 

Peter L. Scherer

 

 

$28,000

 

 

$       0

 

 

$         0

 

 

$  3,620

 

 

$31,620

 

 

 

Gerald A. Schwalbach

 

 

$57,500

 

 

$2,007

 

 

$20,000

 

 

$         0

 

 

$79,507

 

 

 

Douglas A. Scovanner

 

 

$55,000

 

 

$2,007

 

 

$20,000

 

 

$         0

 

 

$77,007

 

 

 

Ralph Strangis

 

 

$50,500

 

 

$2,007

 

 

$20,000

 

 

$10,000

 

 

$82,507

 

 

 

Barry N. Winslow

 

 

$         0

 

 

$   443

 

 

$         0

 

 

$35,800

 

 

$     443

 

 

 


 

(1)    Consists of restricted stock award expense in 2008 of a restricted stock grant of 2,389 shares to each Director in the chart excluding Mr. Scherer who forfeited the shares because he was not a Director on December 31, 2008, and Messrs. Bigos and Winslow who were not Directors in 2006.  TCF’s accounting policy for stock-based compensation is described in Note 1 to TCF Financial’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2008.  Dividends are paid on the shares at the regular rate paid to stockholders.  Based on TCF’s achievement of more than 20% return on tangible equity (“ROTE”) in 2006 and 2007, one-third of this award vested for each outside Director in January 2007 and one-third vested in January 2008.  The ROTE goal was not achieved in 2008 and the remaining one-third of the stock award therefore did not vest in January 2009.  The annual goal for years 2009 and after will be the mean of the Return on Equity (“ROE”) for TCF’s peer group.  (See “Analysis of the Tools the Committee Uses” on page 23 under the “Compensation Discussion and Analysis” section.)  The remaining one-third of the award will vest on the January 1 following the fiscal year in which the new goal is achieved, or if not sooner vested, on January 23, 2016, ten (10) years after the grant date.  The total grant date fair value of each of the 2,389 share awards is $60,158, based on the grant date fair value of $25.1814 per share.  The expense recognized in 2008 represents 1/10 of the grant date fair value for one-third of the total grant of 2,389 shares.

(2)    Mr. Bigos was elected to the Board on October 20, 2008, and was awarded a restricted stock grant of 1,443 shares, which will vest on the January 1 following the fiscal year in which the goal is achieved, or if not sooner vested, on October 20, 2018, ten (10) years after the grant date.  The total grant date fair value of the award was $25,007, based on the grant date fair value of $17.33 per share.  The expense recognized in 2008 represents two months of vesting.  Mr. Winslow was elected to the Board as an outside Director on July 21, 2008, and was awarded a restricted stock grant of 745 shares, with a grant date fair value of $10,011, based on the grant date fair value of $13.437 per share.  Mr. Winslow subsequently rejoined TCF as an employee and therefore became an inside Director, for which no compensation in that role is received.  The expense recognized for 2008 represents five months of vesting.

(3)    Consists of retirement benefits earned during 2008.  This amount is forfeited if a Director does not complete at least five years of Board service (excluding service while an employee of TCF).  There were no above-market or preferential earnings on nonqualified deferred compensation earnings in 2008.

(4)    Consists of matching charitable gift contributions by TCF on behalf of Directors except for Mr. Winslow.  Mr. Winslow’s compensation consists of consulting fees incurred prior to being elected to the Board or employed by TCF.

(5)    This amount does not include distributions that Mr. Cusick received in 2008 from a non-Director TCF deferred compensation plan.

 

13



 

Material Information Regarding Directors’ Compensation.

·                  Cash compensation for outside Directors (which may be deferred and invested in TCF Stock):

·                  Annual Retainer – $20,000; Committee Chairs receive an additional $20,000 annual fee

·                  Board Meetings – $1,000/meeting

·                  Committee Meetings – $500/meeting ($1,000/meeting for Audit Committee members)

·                  Inside Directors (Messrs. Cooper, Nagorske, Pulles, and Winslow) do not receive any compensation for their service as Directors.

·                  Stock Grant Program:

·                  Periodically, but not more often than every three years, outside Directors receive TCF Stock grants equal to three times their annual base retainer: (excludes higher retainer for committee chairs) ($20,000 x 3 = $60,000).

·                  The number of shares granted is determined by dividing three times the annual retainer fee by the price of TCF Stock on the grant date.

·                  The stock vests over a minimum of three years.

·                  Beginning in 2009, one-third of the shares will vest in each year that TCF Financial’s return on equity exceeds the mean for TCF’s peer group of institutions.  (See “Analysis of the Tools the Committee Uses” on page 23 under the “Compensation Discussion and Analysis” section.)

·                  Dividends are paid on unvested shares at the same rate as regular dividends to TCF stockholders.

·                  Once all shares vest or expire, new grants are made.

·                  Unvested shares will vest if a change in control occurs.

·                  Directors’ Retirement Plan:

·                  Directors with five or more years of service as an outside Director receive a retirement benefit.

·                  After five years, outside Directors are 50% vested with an additional 10% vesting each year thereafter until the tenth year when they are 100% vested.  The amount of the annual benefits is the vested percentage times the annual Board retainer (currently $20,000) in effect at retirement.

·                  Benefits become 100% vested if a change in control occurs.

·                  The benefit is paid for a number of years equal to the outside Director’s length of service on the Board.

 

·                  Directors Deferred Plan (for outside Directors):

·                  Fees and stock grants may be deferred until service ends on the Board.

·                  All deferred fees are invested in TCF Stock.

·                  Dividends (market rate) are accumulated and invested in TCF Stock.

·                  Distributions for pre-2005 accounts are in installments or lump sum, as elected by the Director.  For accounts accumulated in 2005 and after, all distributions are in a lump sum.

·                  TCF Matching Gift Program:

·                  TCF offers a matching gift program to supplement donations made by employees and Directors to charitable organizations of their choice up to a maximum gift of $10,000 annually.

·                  Indemnification rights are provided to Directors under TCF Financial’s Certificate of Incorporation and Bylaws, to the extent authorized under Delaware General Corporation Law and TCF maintains Directors and Officers Insurance.

·                  TCF pays for travel and other expenses of TCF Directors to attend Board meetings as a business expense.

·                  TCF typically holds one Board meeting per year (the “Annual Board Retreat”) at a remote location within or outside the U.S. and pays Directors’ travel and lodging expenses incurred in connection with the meeting, as well as those of the Directors’ spouses.  The 2009 Annual Board Retreat will be held in Minneapolis, Minnesota.

 

14



 

Outstanding Equity Awards of Outside Directors at December 31, 2008

 

 

 

 

# Shares Unvested

 

 

Market Value of

 

 

 

Restricted Stock

 

 

Unvested Shares

Name

 

 

(1)

 

 

(2)

William F. Bieber

 

 

797

 

 

 

$10,887

Theodore J. Bigos (3)

 

 

1,443

 

 

 

$19,711

Rodney P. Burwell

 

 

797

 

 

 

$10,887

Thomas A. Cusick

 

 

797

 

 

 

$10,887

Luella G. Goldberg

 

 

797

 

 

 

$10,887

George G. Johnson

 

 

797

 

 

 

$10,887

Gerald A. Schwalbach

 

 

797

 

 

 

$10,887

Douglas A. Scovanner

 

 

797

 

 

 

$10,887

Ralph Strangis

 

 

797

 

 

 

$10,887

Barry N. Winslow (4)

 

 

745

 

 

 

$10,177


(1)             Consists of the Directors’ stock award as described in footnote (1) to the Director Compensation table on page 13.

(2)             Consists of the number of unvested shares shown in the previous column, multiplied by the closing stock price on December 31, 2008, the last business day of 2008, of $13.66 per share.

(3)             Mr. Bigos was elected to the Board in October 2008 and was awarded a restricted stock grant.  See the Director Compensation table on page 13.

(4)             Mr. Winslow became an inside Director at the end of July 2008.  These shares represent the stock award he received while he was an outside Director.  See the Director Compensation table on page 13.

 

15



 

TCF STOCK OWNERSHIP OF DIRECTORS, OFFICERS AND 5% OWNERS

 

The following chart shows ownership as of January 31, 2009 (except as indicated in footnote (5)) of TCF Stock by those indicated.

 

Name of Beneficial Owner

 

 

Amount and Nature of
Beneficial Ownership (1)(4)

 

% of Shares Outstanding (2)

 

Directors who are not Named Executives:

 

 

 

 

 

 

 

 

 

 

 

William F. Bieber.

 

 

914,652

(6)

 

 

 

*

 

 

 

Theodore J. Bigos

 

 

22,053

(6)

 

 

 

*

 

 

 

Rodney P. Burwell

 

 

188,558

(6)

 

 

 

*

 

 

 

Thomas A. Cusick

 

 

464,949

 

 

 

 

*

 

 

 

Luella G. Goldberg

 

 

233,407

(6)

 

 

 

*

 

 

 

George G. Johnson

 

 

70,420

 

 

 

 

*

 

 

 

Gerald A. Schwalbach

 

 

158,928

(6)(7)

 

 

 

*

 

 

 

Douglas A. Scovanner

 

 

17,036

 

 

 

 

*

 

 

 

Ralph Strangis

 

 

126,908

(6)

 

 

 

*

 

 

 

Named Executives:

 

 

 

 

 

 

 

 

 

 

 

William A. Cooper

 

 

4,193,450

(7)

 

 

 

3.3

%

 

 

Lynn A. Nagorske

 

 

491,103

(7)

 

 

 

*

 

 

 

Thomas F. Jasper

 

 

52,894

 

 

 

 

*

 

 

 

Neil W. Brown

 

 

239,417

 

 

 

 

*

 

 

 

Candace H. Lex

 

 

5,528

 

 

 

 

*

 

 

 

Gregory J. Pulles

 

 

393,618

 

 

 

 

*

 

 

 

All Directors and Executive Officers combined

 

 

 

 

 

 

 

 

 

 

 

(26 persons, including those named above)

 

 

9,393,957

(3)(6)(7)

 

 

 

7.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5% beneficial owners

 

 

 

 

 

 

 

 

 

 

 

Advisory Committee of TCF

Employees Stock Purchase Plan

c/o General Counsel

TCF Financial Corporation

200 Lake Street East

Mail Code EX0-03-A

Wayzata, MN 55391-1693

 

 

7,846,069

(6)

 

 

 

6.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Barclays Global Investors, N.A.

400 Howard Street

San Francisco, CA 94105

 

 

7,391,288

(5)

 

 

 

5.7

%

 

 


*      Represents 1.0% or less of the outstanding common stock of the class.

(1)    All shares are directly owned or purchasable by options exercisable within 60 days after January 31, 2009, and the person indicated has sole voting and dispositive power, except as indicated in the following footnotes.  Includes shares beneficially owned by family members who share the person’s household, with respect to which shares the indicated person disclaims any beneficial ownership, as follows: Mr. Bieber, 14,000 shares; Mr. Brown, 54,000 shares; Mr. Burwell, 58,000 shares; Mr. Cooper, 26,131 shares; Ms. Goldberg, 10,000 shares; Mr. Pulles, 134,115 shares; and all Directors and executive officers combined, 337,914 shares.

(2)    Each amount showing the percentage of outstanding shares owned beneficially has been calculated by treating as outstanding and owned the shares which could be purchased by the indicated person upon the exercise of existing options within 60 days after January 31, 2009.

 

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(3)    Includes shares which could be purchased upon the exercise of existing options within 60 days after January 31, 2009.  As of January 31, 2009, there were 95,000 options outstanding for all executive officers combined.

(4)    Includes whole shares of TCF Stock allocated to accounts in the TCF Employees Stock Purchase Plan, for which the Named Executives and certain Directors have shared voting power as follows:  Mr. Brown, 6,088 shares; Mr. Jasper, 5,961 shares; Ms. Lex, 2,078 shares; Mr. Nagorske, 60,484 shares, Mr. Pulles, 48,439 shares; and all Directors and executive officers combined, 376,730 shares.  Also includes whole shares of TCF Stock in the trust for the ESPP Supplemental Plan (as defined on page 31), for which the Named Executives do not have voting power, as follows:  Mr. Brown, 22,979 shares; Mr. Jasper, 2,100 shares; Ms. Lex, 3,450 shares; Mr. Nagorske, 22,684 shares; Mr. Pulles, 50,728 shares; and all Directors and executive officers combined, 208,953 shares.  Also includes whole shares of TCF Stock (vested and unvested) in the trust for the TCF Financial Directors Deferred Compensation Plan for which the Directors do not have voting power, as follows: Mr. Bieber, 58,852 shares; Mr. Bigos, 2,053 shares; Mr. Burwell, 15,558 shares; Mr. Cooper, 8,395 shares; Mr. Cusick, 8,990 shares; Ms. Goldberg, 152,743 shares; Mr. Johnson, 58,279 shares; Mr. Schwalbach, 20,479 shares; Mr. Scovanner, 14,736 shares; Mr. Strangis, 58,908 shares; and all Directors combined, 398,993 shares.

(5)    Beneficial ownership of shares by Barclays Global Investors, N.A., is in the following manner:  sole voting power 6,163,050 shares; shared voting power 0 shares; sole dispositive power 7,391,288 shares; shared dispositive power 0 shares.  The foregoing information is based upon the Form 13G filed with the SEC by Barclays Global Investors, N.A. on February 5, 2009.  Information is as of December 31, 2008.

(6)    The Advisory Committee for the TCF Employees Stock Purchase Plan has shared voting power with participants of all allocated shares in the Plan.  Advisory Committee members disclaim ownership of these shares.  Information on the table as to shares beneficially owned by Ms. Goldberg, and Messrs. Bieber, Bigos, Burwell, Schwalbach, and Strangis, does not include any shares beneficially owned by the Advisory Committee.

(7)       Includes shares pledged as collateral for loans undertaken by Directors or Named Executives as follows:  Mr. Cooper, 3,509,000 shares; Mr. Nagorske, 279,213 shares; Mr. Schwalbach, 68,326 shares; and all Directors and executive officers combined, 4,706,616 shares.

 

Were All Stock Ownership Reports Timely Filed by TCF Financial Insiders? (Section 16(a) Beneficial Ownership Reporting Compliance).  Section 16(a) of the Securities Exchange Act of 1934, as amended, requires TCF Financial’s Directors, executive officers and persons who beneficially own more than 10% of the outstanding shares of TCF Stock to file stock ownership reports with the SEC and the NYSE.  Based upon representations signed by officers and Directors, TCF Financial believes that all reports required by officers and Directors were filed on a timely basis during 2008, except that TCF filed one late report for the cancellation of 797 shares of unvested restricted stock on behalf of Peter Scherer, a former TCF Director.

 

17



 

BACKGROUND OF EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

 

The following describes the last five years (or longer) of business experience of executive officers of TCF Financial, or its principal wholly-owned subsidiary TCF Bank, who are not Directors of TCF Financial.  In these descriptions, TCF Bank – Lakeshore is the Illinois-Wisconsin division of TCF Bank.  TCF Bank – Michigan is the Michigan division of TCF Bank, and TCF Bank – Minnesota and TCF Bank – Colorado are the Minnesota and Colorado divisions respectively, of TCF Bank.  TCF Bank Wisconsin, TCF Bank Michigan, TCF Bank Minnesota, and TCF Bank Colorado are former subsidiary banks that were merged into TCF Bank.  TCF National Bank Arizona is a wholly-owned subsidiary of TCF Financial.

 

TIMOTHY P. BAILEY (age 53) was elected Vice Chairman of Commercial and Consumer Credit of TCF Bank in 2008.  Prior to that, he was President and CEO of TCF Bank from 2006 to 2008.  From 2001 to 2005, he was President of TCF Bank – Lakeshore.  He has also held various other positions with TCF Bank: Chief Operating Officer/Lending of TCF Bank – Lakeshore from 2000 to 2001; President and Chief Executive Officer of TCF Bank Wisconsin from 1993 to 2001, and prior to that Vice President of Commercial Lending/Loan Workouts with TCF Bank.

 

PAUL B. BRAWNER (age 60) was elected Executive Vice President of TCF Bank in 2000.  Prior to that, he was a Senior Vice President of TCF Bank from 1998 to 2000.

 

JAMES S. BROUCEK (age 45) was elected Treasurer of TCF Financial and TCF Bank in 2005 and Senior Vice President of TCF Financial in 2002.  He also has been Chief Investment Officer since 2001 and Executive Vice President since 2007 of TCF Bank.  Prior to that, he was Senior Vice President and Controller of TCF Bank – Michigan since 1995.

 

NEIL W. BROWN (age 50) was elected President and Chief Operating Officer of TCF Financial effective January 1, 2007.  He has been President of TCF Financial since January 2006 and was Chief Financial Officer from 1998 through December 2006.  He was an Executive Vice President and Treasurer of TCF Financial from 1998 to 2005.

 

CRAIG R. DAHL (age 54) has been Chairman of TCF Inventory Finance, Inc., since 2008; President of TCF Equipment Finance, Inc., since 1999; and Chairman and Chief Executive Officer of Winthrop Resources Corporation, since 2003, all of which are wholly-owned subsidiaries of TCF Bank.  He has also been an Executive Vice President of TCF Financial since 1999.

 

JOSEPH W. DOYLE (age 61) was elected President of TCF Bank – Michigan in November 2008.  Prior to that, he had been the head of TCF Bank – Michigan Consumer Lending division since July 2005.  He has also held various positions with TCF affiliates: Executive Vice President of TCF Mortgage Corporation (Minnesota) from 2000 to 2005; head of TCF Bank – Michigan Residential Lending division from 1996 to 2000; Executive Vice President of TCF Mortgage Corporation from 1994 to 1996; and President (1991 to 1994), Senior Vice President (1990 to 1991), and Vice President of branch operations (1989 to 1990) for North Star Title, a subsidiary of TCF Bank Savings.

 

THOMAS F. JASPER (age 40) was elected Executive Vice President and Chief Financial Officer of TCF Financial in January 2007.  Prior to that, he was Executive Vice President and Chief Financial Officer of TCF Equipment Finance, Inc., and Executive Vice President of Winthrop Resources Corporation.  Prior to joining TCF Equipment Finance, Inc. in 2001, he held various other positions, including Senior Manager, at KPMG LLP.

 

MARK L. JETER (age 52) was elected President of TCF Bank – Minnesota in 2000.  Prior to that, he held various positions with TCF affiliates: Chief Executive Officer of TCF Bank Michigan (1998 – 2000), President of TCF Bank Michigan (1999 – 2000), Executive Vice President of Retail Banking of TCF Bank (1996 – 1998), and Senior Vice President of Retail Banking of TCF Bank (1994 – 1996).

 

TIMOTHY B. MEYER (age 50) was elected President of TCF Bank – Colorado in 2008 and TCF Bank Arizona in 2006.  Prior to that, he was Executive Vice President of Consumer Lending for TCF Bank – Minnesota since 2002 and a Senior Vice President of Consumer Lending from 1998 – 2002.

 

18



 

MARK W. ROHDE (age 47) was elected President of TCF Bank – Lakeshore in 2006.  Prior to that, he was Executive Vice President of Consumer Lending of TCF Bank – Lakeshore since 1997.

 

DAVID M. STAUTZ (age 52) was elected Executive Vice President of TCF Bank in 2007 and was elected Senior Vice President, Controller and Assistant Treasurer of TCF Financial, and Assistant Treasurer of TCF Bank in 1999.  He has been Controller of TCF Bank since 2000.  Mr. Stautz is a member of the American Institute of Certified Public Accountants.

 

EARL D. STRATTON (age 61) was elected Executive Vice President and Chief Information Officer of TCF Financial in 1995 and TCF Bank in 2001.  Prior to that, he was a Senior Vice President of TCF Financial and a Senior Vice President of TCF Bank since 1985.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Compensation Committee of the Board of Directors (“Committee”)

 

Overview

 

The following Compensation Discussion and Analysis provides information on compensation paid to TCF’s Chief Executive Officer, Chief Financial Officer, the other three most highly compensated executive officers in 2008 and Mr. Nagorske (TCF’s former Chief Executive Officer who retired in 2008).  While Executive Vice President Ms. Lex is a Named Executive in this proxy statement, she is no longer an employee of the Company.  These individuals are referred to as the “Named Executives,” and are shown in the Summary Compensation Table on page 36.  In this section, the term “Committee” refers to the Compensation Committee of the Board of Directors or a subcommittee thereof, all of the members of which meet the independence requirements of Internal Revenue Code Section 162(m) and Securities and Exchange Commission Rule 16b-3.

 

The following are key developments in 2008 and 2009 relating to TCF’s Named Executive compensation:

 

·                  Mr. Nagorske retired as Chief Executive Officer in July 2008 and was replaced by former Chief Executive Officer William A. Cooper.

 

·                  The Committee determined that Mr. Cooper, Chief Executive Officer, will not be paid a base salary or annual cash bonus, but instead received a multi-year grant of restricted stock and stock options.

 

·                  Base salaries for the Named Executives in 2009 will be the same as in 2008.

 

·                  No cash bonuses were earned or paid to the Named Executives for 2008.

 

·                  2009 cash incentives for the Named Executives will be discretionary based on individual performance.

 

·                  In January 2009, the Committee made restricted stock awards to executives (except Mr. Cooper) totaling 290,000 shares.  One-third of each award will vest each year over the 3-year period from 2010 through 2012.  Vesting will not be tied to an earnings or other financial target.

 

·                  Beginning in November, 2008, TCF is participating in the U.S. Treasury Department’s Capital Purchase Program (“CPP”) which prohibits incentive compensation programs for senior executives that encourage “unnecessary or excessive risk.”  (See “TCF’s Participation in the CPP” on page 27.)

 

·                  In accordance with the CPP requirements, TCF amended its executive contracts by providing for a “claw-back” of incentive compensation under certain circumstances and limiting “golden parachute” payments.

 

·                  Under the CPP requirements, TCF is not permitted to deduct compensation related to certain Named Executives in excess of $500,000, even if such compensation is “qualified performance-based” compensation.

 

19



 

·                  In response to the CPP requirements, effective January 2009, executive restricted stock awards from 2008, including those of Mr. Cooper and Mr. Pulles, were amended to eliminate the requirement that TCF achieve a performance target for the award to vest.

 

 

Objectives of TCF’s Executive Compensation Program

 

TCF’s executive compensation program is designed to:

 

1.     Attract and retain experienced, highly qualified executives critical to the Company’s long-term success and enhancement of stockholder value.

 

2.     Link pay to individual performance in a way that does not encourage unnecessary or excessive risk to the Company.

 

3.     Result in the majority of total compensation being in the form of an annual cash incentive and long-term incentives which are based on individual performance.

 

4.     Align the executives’ interests with that of stockholders through long-term ownership of TCF Stock.

 

 

 

Elements of Executive Compensation

What the Executive Compensation Program is Designed to Reward

 

TCF’s executive compensation program is comprised of the following elements:

 

1.     Base Salary.  This is a fixed component that is intended to provide a minimum level of compensation necessary to attract and retain highly qualified executives and to avoid unnecessary or excessive risk taking by executives (see discussion below under “Annual Cash Incentive”).  The Committee reviews the level of base salaries annually, and approves adjustments to base salaries upon recommendation of the Chief Executive Officer when they become uncompetitive or responsibilities are increased.  Mr. Cooper does not receive a base salary.

 

 

2.     Annual Cash Incentive.  Current Named Executives (except Mr. Cooper) are eligible for an annual cash incentive.  In 2008, the cash incentive was based on achievement of a corporate financial goal and individual goals.  (Mr. Cooper was not eligible for any part of the 2008 cash incentive.)  In 2009, the incentive is discretionary based on individual performance.  In evaluating individual performance and approving the payment of a cash incentive, the Committee will consider the Chief Executive Officer’s assessment of whether the executive caused the Company to incur any unnecessary or excessive risk to achieve the incentive.  The annual cash incentive is therefore designed, on the one hand, to reward individual performance by each Named Executive within his or her area of responsibility, and on the other hand, to discourage unnecessary or excessive risk taking by an executive that may be to the Company’s long-term detriment.

 

 

3.     Long-Term Incentive.  The Committee approves periodic discretionary awards of restricted stock and stock options upon recommendation (except in the case of his own awards) of the Chief Executive Officer, as it believes the best long-term incentive is ownership of TCF Stock.  The timing of these awards is based largely on the status of existing unearned and unvested awards, which usually vest over a three- to four-year period.  The Committee will generally consider making a new award when a previously unvested award is about to vest or be forfeited.  The Committee believes that an unearned and unvested stock or stock option award should be outstanding for each Named Executive at all times to serve as an incentive to remain with the Company and to focus the executive on the Company’s long-term financial performance.  Additionally, the Committee believes the long-term nature of an investment in restricted stock and stock options discourages executives from taking unnecessary or excessive risk to achieve desired financial performance.   The annual value of each grant has generally been a multiple of base salary and dependent on a number of factors, including level of base salary, length of service with the Company, position, time period established for vesting, number and size of prior grants, and amount of stock previously earned.  Stock options are valued using the Black-Scholes option pricing model.  Various performance goals have been used for vesting of stock grants, however, the grants awarded in 2008 (as modified) and 2009 (described below) have no performance goals.

 

 

20



 

 

TCF generally makes awards of restricted stock and stock options for existing employees at its regularly scheduled meetings of the Committee.  For stock options, the exercise price is determined at fair market value on the date of the award.  The Company does not coordinate the timing of awards with the release of material information.

 

The following restricted stock and stock option awards were in place during 2008 and through the date of this proxy statement:

 

·      In January 2006, the Committee approved restricted stock awards (the “Year 2006 Stock Awards”) consisting of 477,500 shares in total to members of TCF Financial’s executive management group, including the Named Executives.  The number of shares that vest was tied to year-over-year increases in earnings-per-share (“EPS”) during each of the years 2006, 2007, and 2008, in excess of the base EPS for 2005 of $2.00.  These awards qualified as “performance-based” under Internal Revenue Code Section 162(m).  Generally, executives must remain employed with the Company until January 31, 2011 in order to receive their earned shares.  However, if an executive leaves the Company before then on account of retirement, disability, or death, any earned shares accumulated to the date of the executive’s departure become transferable on January 31, 2011 (or sooner in the case of disability or death).  Any outstanding Year 2006 Award shares will fully vest upon a change in control of TCF Financial.  The Committee previously approved the payment of dividends on unearned and unvested stock under the Year 2006 Stock Awards.  As of December 31, 2008, 31,575 shares of the Year 2006 Stock Awards were earned.  All shares that were not earned as of the end of 2008 were forfeited in January 2009.

 

·      In January 2007, the Committee approved two additional performance-based awards of 10,000 shares each as part of the Year 2006 Stock Awards to two newly-elected executives, including Mr. Jasper, who was elected Chief Financial Officer effective January 1, 2007.  For those awards, the vesting goals were adjusted to allow the possibility of earning 100% of the shares in two years (2007-08) instead of three years (2006-08). The Committee also approved two additional non-performance-based awards of 10,000 shares each to these executives.

 

·      In January 2008, the Committee approved stock option awards to the Named Executives (except Mr. Cooper, who was not yet employed by the Company) with an annual value equal to or near one times base salary (for Mr. Pulles, the value of his restricted stock award described below plus the value of the stock option award were combined to achieve this target).  The strike price for these stock options is equal to the average of the high and low stock price on January 18, 2008 (the market being closed on the date of the award, which was January 21, 2008) or $15.75. One-half of the stock options will vest January 1, 2011, and the other one-half will vest January 12, 2012.

 

·      In January 2008, the Committee also approved a restricted stock award to Mr. Pulles. Under the original terms of that award, one-half of the restricted stock award will vest on January 31, 2011 if the Company achieves an average return on equity (“ROE”) of 15% for the three years 2008, 2009, and 2010, and the other one-half will vest on January 31, 2012, if the Company achieves average ROE of 15% for the three years 2009, 2010, and 2011. The restricted stock award has since been amended to eliminate the ROE requirement for vesting, as further discussed below.  No dividends will be paid in connection with this restricted stock award until it vests.

 

·      In July 2008, the Committee approved restricted stock and stock option awards to Mr. Cooper in connection with his election as Chief Executive Officer, a further discussed below.

 

·      In January 2009, the Committee approved additional restricted stock awards to current Named Executives (except Mr. Cooper), as further discussed below.

 

 

4.     Retirement Benefits.  TCF has no special retirement benefits for Named Executives.  They participate in the TCF Employee Stock Purchase Plan and have participated in the now frozen Cash Balance Pension Plan to the same extent as other employees, except they, along with other highly compensated employees, participate in supplemental plans that are nonqualified, noncontributory and unfunded programs intended to allow those employees to receive amounts they would have been entitled to receive under the regular plan had that plan not been limited by Internal Revenue Code limitations.  Retirement benefits are not considered to be a significant component of overall compensation.

 

 

21



 

 

 

5.     Payments in the Event of Termination.  As further discussed below, certain Named Executives have employment contracts which generally provide for a cash payment in the event of a termination of employment equal to two times the sum of base salary plus annual cash incentive (using a three-year average for the cash incentive).  In the case of Mr. Nagorske prior to his retirement in July 2008, the amount was equal to three times the sum of base salary plus annual cash incentive (using a three-year average for the cash incentive).   The Committee reviews these agreements annually.  These agreements have an “evergreen” feature under which they automatically renew for an additional year unless terminated.  Certain Named Executives also have change-in-control agreements which provide for a cash payment in the same amount as provided for in the employment contracts (less any amount payable under  the employment contracts) in the event of a change in control, and vesting of outstanding restricted stock and stock option awards, together with an excise tax gross-up.  These agreements remain in force as long as the Named Executive is employed by the Company.

 

While Mr. Cooper has an employment contract that was entered into in connection with his election as Chief Executive Officer, he does not receive a base salary and therefore is not eligible for a cash payment in the event of a termination of employment or change in control.  However, the terms of Mr. Cooper’s July 2008 restricted stock and stock option awards generally provide for immediate vesting of these awards in the event of termination of employment or change in control.

 

As further discussed below, all employment-related agreements with the Named Executives have been amended to prohibit “golden parachute” payments, as required due to TCF’s participation in the CPP.

 

 

6.     Perquisites.  Current Named Executives receive perquisites in the form of use of Company-owned automobiles, club memberships, executive physicals, and tax return preparation.  Mr. Cooper and Mr. Brown receive personal use of the Company airplane limited in the case of Mr. Brown to 50 hours per year.   Mr. Nagorske, prior to his retirement in July 2008, also received personal use of the Company airplane limited to 50 hours per year.   Mr. Cooper may approve personal use by other Named Executives on an exception basis.  The purpose of these perquisites is to provide additional benefits to the executives, reduce security risks, and enhance scheduling and efficient use of the executives’ time.  In the case of Mr. Cooper, this also reflects his family’s relocation to Ohio prior to his re-employment by TCF and facilitates his commute to and from TCF’s offices in Minnesota.

 

 

While the amount of the annual cash incentive and long-term incentive are not formally tied to base salary, it is generally expected that increases in base salary for a Named Executive (except Mr. Cooper) would generally result in an increase in the executive’s annual cash incentive and long-term incentive potential.  If a Named Executive did not earn an annual cash incentive for a given year, there would be no impact on the executive’s base salary or long-term incentive.  If a Named Executive earned no long-term incentive in a given year, there would be no impact on the executive’s base salary or annual cash incentive.  Except in the case of Mr. Cooper, payments in the event of termination are based on a multiple of base salary and annual cash incentive, plus equity vesting and excise tax gross-up.

 

Roles and Responsibilities

 

The Committee approves all compensation decisions for Named Executives, except any employment contract or severance agreement for the Chief Executive Officer, which is approved by the full Board.  Annually, when applicable, the Committee reviews the Company’s financial results for the previous year to determine if performance targets have been achieved for purposes of performance-based compensation for Named Executives.  The Committee also determines discretionary compensation awards to Named Executives (including awards based on Committee evaluation of individual performance), if any, on an annual basis.  The Committee has never waived a goal or reduced the performance measure required to achieve vesting of a performance-based award that qualified for a deduction under Internal Revenue Code Section 162(m) and does not have the discretion under Section 162(m) to do so.  The Committee has discretion to determine the vesting and other terms of stock and option awards, and to amend such awards after issuance to prospectively change vesting and other criteria.  Any amendments made to stock awards after issuance require the consent of the recipient and are subject to the restrictions of Section 162(m) if the awards are intended to qualify as performance-based.  In 2009 the Committee amended certain restricted stock awards, with the consent of the recipients, to convert them from performance-based to non-performance-based awards.  The affected stock awards were made in 2008 to Chief Executive Officer William A. Cooper and Named Executive Gregory J. Pulles and two other executives.  See “Analysis of Decisions Made by the Committee in January 2009” on page 28.  The Chief Executive Officer sets the strategic direction and makes recommendations to the Committee

 

 

22



 

concerning all elements of compensation for the other Named Executives.  The Chief Executive Officer reviews with the Chair of the Compensation Committee on an informal and regular basis the performance of the Named Executives, future management changes, and other matters relating to compensation.  The Named Executives (other than the Chief Executive Officer) generally do not make recommendations to the Committee concerning their own compensation, although they may provide the Chief Executive Officer with information used to support a recommendation to the Committee (such as proposed goals and information concerning the structure of their compensation).

 

Following his election as Chief Executive Officer in July 2008, Mr. Cooper and the Chair of the Compensation Committee engaged in negotiations concerning the amount and structure of Mr. Cooper’s compensation package.  The Chair of the Compensation Committee consulted with other members of the Committee and then made his recommendation to the full Committee, which then approved the recommendation and the terms of the compensation package.

 

Analysis of the Tools the Committee Uses

 

The Committee uses (1) tally sheets, (2) an annual peer group (“Peer Group”) comparative analysis prepared by SNL Financial, (3) an annual analysis prepared by the firm of Towers Perrin, (4) a perquisite survey, and (5) total TCF Stock ownership data to determine whether the objectives of the Company’s executive compensation policies are being met.

 

 

 

1.     Tally Sheets.  The tally sheets show total compensation to Named Executives and also the total amount payable to Named Executives in the event of termination and/or change in control.  The tally sheets, together with the total compensation data from the Peer Group comparative analysis, provide a complete picture of all principal elements of executive compensation.

 

 

2.     Peer Group Comparative Analysis.  TCF’s Peer Group consists of 30 publicly-traded banking and thrift institutions, 15 of which are immediately larger and 15 of which are immediately smaller than TCF in total assets.  This group was selected because it is large enough to include a broad group of institutions but small enough to factor out institutions much different than TCF in size.

 

The group includes only financial institutions because that is the industry in which TCF operates.  The Peer Group criteria have been the same since 1997, although the makeup of the group changes annually.  The Peer Group comparative analysis measures both compensation and financial performance.  The analysis first measures base salary (which includes other compensation, such as 401(k) match, the cost of life insurance, and certain perquisites), annual cash incentives, and long-term incentives for the five highest-paid executives for each Peer Group institution, including TCF, based on information obtained from proxy solicitations.  The firm of Towers Perrin assists in the compilation of this information.  The Peer Group institutions are then ranked by total compensation, defined as the sum of base salary, annual cash incentive, and long-term incentive.  The Peer Group comparative analysis also measures return on average assets (“ROA”), return on equity (“ROE”), and earnings-per-share (“EPS”) growth for each of the institutions, including TCF.  The ROA and ROE are measured for the first, second, third and fifth years before the year in which the analysis is performed.  The EPS growth is measured over one-, two-, three-, and five-year periods ending in 2007.  The Peer Group institutions are then ranked by overall financial performance, with a weighting of 25% for ROA, 25% for ROE, and 50% for EPS growth.

 

The Committee uses the tally sheets and the Peer Group comparative analysis to evaluate the competitiveness of executive compensation (that is, TCF’s rank and whether TCF’s pay is above or below the median), and to determine whether TCF’s pay is appropriately linked to performance (that is, TCF’s rank in pay versus its rank in performance).  This review is performed annually at the Committee’s July meeting.  The Committee also reviews the tally sheet information reflecting the total amounts payable to executives in the event of a termination of employment and in the event of a change in control to determine if the amounts payable are deemed reasonable in light of the objectives for the employment and change in control agreements.

 

The Peer Group used for the Committee’s July 2008 review consisted of:  IndyMac Bancorp Inc.; Colonial BancGroup; Astoria Financial Corporation; Associated Banc-Corp; Webster Financial Corporation;  BOK Financial Corporation; Downey Financial Corp.; W Holding Company Inc.; Sky Financial Group, Inc.; First

 

 

23



 

 

Citizens BancShares, Inc.; Commerce Bancshares, Inc.; Flagstar Bancorp, Inc.; Fulton Financial Corporation; City National Corporation; South Financial Group, Inc.; BankUnited Financial Corporation; Fremont General Corporation; Merchant’s Bancshares, Inc.; Valley National BankCorp; BankcorpSouth, Inc.; Cullen/Frost Bankers, Inc.; Investors Financial Services Corp.; MAF Bancorp, Inc.; East West Bancorp, Inc.; First Republic Bank; Wilmington Trust Corporation; International Bancshares Corporation; Bank of Hawaii Corporation; FirstMerit Corporation; People’s United Financial, Inc..

 

The Peer Group that will be used for the Committee’s July 2009 review will consist of:  Zions Bancorporation; Hudson City Bancorp, Inc.; Popular, Inc.; Synovus Financial Corp.; First Horizon National Corporation; New York Community Bancorp, Inc.; Colonial BancGroup, Inc.; Associated Banc-Corp; BOK Financial Corporation; Astoria Financial Corporation; People’s United Financial, Inc.; First BanCorp.; Webster Financial Corporation; Commerce BancShares, Inc.; First Citizens BancShares, Inc.; City National Corporation; Fulton Financial Corporation; Guaranty Financial Group Inc.; Valley National Bancorp; Flagstar Bancorp, Inc.; Cullen/Frost Bankers, Inc.; South Financial Group, Inc.; Susquehanna Bancshares, Inc.; BancorpSouth, Inc.; Citizen’s Republic Bancorp, Inc.; UCBH Holdings, Inc.; Sterling Financial Corporation; Wilmington Trust Corporation; Washington Federal, Inc.; East West Bancorp, Inc.

 

 

3.     Towers Perrin Analysis.  The firm of Towers Perrin is engaged every year to review TCF’s performance and compensation data as compared to the Peer Group to determine: (1) whether and to what extent the overall level of total compensation for the Named Executives was aligned with three measures of financial performance – ROA, ROE and EPS growth, and (2) whether, in its view, TCF’s compensation levels were appropriately aligned with financial performance based on the Peer Group data.  The Towers Perrin analysis based on data supplied by SNL Financial is reviewed by the Committee annually at its July meeting.  Towers Perrin is used because it has experience working with many companies over many years and can provide expert insights into the Company’s executive compensation plans and pay.  The Committee confers with Towers Perrin with respect to design ideas, but the Committee makes the final compensation decisions.  Towers Perrin has also provided advice on the Committee’s process for determining whether executive incentive compensation encourages unnecessary or excessive risk that threatens the value of the Company.  See “TCF’s Participation in the CPP” on page 27.

 

 

4.     Annual Perquisite Report.  The Committee annually reviews a report of executive perquisites prepared by TCF’s Director of Corporate Human Resources.  The Committee uses the report to determine whether perquisites for TCF’s executives are reasonable and not excessive.  The Committee would reduce or eliminate any perquisite if it felt the perquisite, or total perquisites, were excessive based on its judgment of industry norms.

 

 

5.     Stock Ownership Data.  The Committee periodically reviews the amount of TCF Stock owned by each Named Executive, but does not feel that the level of accumulation should be a factor in setting the level of base salary or annual cash incentive.  The Committee might take such accumulation into account in making a restricted stock or stock option award but to date has not done so.

 

The Committee has not established a minimum level of required TCF Stock ownership for Named Executives because the current level of such ownership already meets the Committee’s expectations for this group.  The Committee believes that continuing substantial ownership by executives of TCF Stock received as grants aligns the executives’ interests with those of stockholders and acts as a disincentive for the executives to engage in unnecessary or excessive risk.

 

 

How TCF Ties the Elements of Executive Compensation to the Committee’s Objectives

July 2008 Review of Executive Compensation

 

At each July meeting, the Committee reviews Named Executive compensation in light of the Committee’s compensation objectives in preparation for decisions to be made at the following January meeting.  At the July 2008 meeting, the Committee compared TCF’s levels of base salary, total direct compensation (defined as base salary plus annual cash incentive), long-term incentive and aggregate total compensation with that of the Peer Group.  Although it has not established a target, the Committee would generally like to have base salaries when viewed in

 

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the aggregate to be at or near the Peer Group median in order to attract and retain highly qualified executives and to help avoid unnecessary or excessive risk taking by executives.  The Committee believes above average performance should generally be rewarded with the variable elements of compensation, such as the annual cash incentive, and restricted stock and stock option awards.  The Committee infrequently adjusts base salaries as necessary based on the Peer Group data and to reflect any increase in duties.  Although the Committee does not have a formal policy, it would like to generally have more than one-half of a Named Executive’s compensation contingent on performance of corporate and/or individual goals and consideration of whether the executive engaged in excessive or unnecessary risk.

 

The July 2008 review was based on executive compensation and Peer Group data for calendar year 2007.  For purposes of that review, the term “Named Executives” referred to TCF’s Chief Executive Officer, Chief Financial Officer, and its three highest paid individuals other than the Chief Executive Officer and Chief Financial Officer in 2007.  (Mr. Nagorske was included in this group, but Mr. Cooper was not.).  For 2007, the base salaries for the Named Executives as a group ranked 20th in the Peer Group.  Mr. Nagorske’s base salary ranked 21st among the highest paid executives in the Peer Group.

 

For 2007, the total direct compensation (base salary plus annual cash incentive) for the Named Executives as a group ranked 5th in the Peer Group.  Mr. Nagorske’s total direct compensation ranked 6th in the Peer Group.

 

The Committee also reviewed aggregate total compensation for the Named Executives as a group, defined as the total of base salary, annual cash incentive, and long-term incentive (for TCF the value of restricted stock and stock options).  For 2007, aggregate total compensation for the Named Executives as a group ranked 7th in the Peer Group.  Mr. Nagorske’s aggregate total compensation ranked 10th in the Peer Group.

 

The Committee then compared compensation rankings with the financial performance rankings based on the 2007 data.  TCF ranked 2nd in the Peer Group in financial performance based on ROA (25% weighting), ROE (25% weighting), and EPS growth (50% weighting), which covered performance over the several years described above.  TCF’s high ranking was due to superior performance in the ROA and ROE categories, where it ranked 1st or 2nd for most years included.  TCF’s one-, two-, three-, and five-year EPS growth rankings ranged from 3rd to 12th, reflecting a significant drop in performance in this category when compared to the Peer Group.

 

In addition to the review conducted for the Named Executives as a group, the Committee reviewed the Peer Group data for each Named Executive.  Mr. Nagorske’s aggregate total compensation (base salary plus annual cash incentive plus long-term incentive) ranked 10th in the Peer Group.  The next highest paid Named Executive ranked 8th, the third 6th, the fourth 5th, and the fifth 5th.

 

The Towers Perrin report reviewed by the Committee at its July  2008 meeting concluded that the overall levels of total compensation were generally aligned with EPS performance, but the pay and performance relationship weakened (pay lagged performance) when considering ROA and ROE performance.

 

The Relationship of Pay Between Named Executives

 

The Committee felt it was important, in the case of Mr. Nagorske, for his base salary to be somewhat near the median in the Peer Group.  Once his base salary was determined, base salaries for other Named Executives (except Mr. Cooper) were set in relation to Mr. Nagorske’s base salary.  In setting base salaries for the other Named Executives (other than Mr. Cooper), the Committee did not use any specific formula, but rather set base salaries based primarily on responsibility level, performance and tenure with the Company.  The Committee felt that Mr. Brown, the second highest ranking executive, should receive less base salary than Mr. Nagorske but more than the other Named Executives.  Mr. Brown’s base salary also reflects his exceptional performance.  The Committee set Mr. Pulles’ base salary based on his tenure with the Company and his performance as General Counsel.  Mr. Jasper’s salary reflects his responsibilities as Chief Financial Officer and is lower than his peers because he only recently assumed this position (it is expected to be increased over time).  The base salary for all Named Executives other than the Chief Executive Officer is based on the Chief Executive Officer’s recommendation.

 

The annual cash incentive and annual value of long-term compensation for the Named Executives has generally been (except in the case of Mr. Cooper) a multiple of base salary.  However, the earned or vested value of an award to an individual Named Executive may vary, and therefore the relationship of aggregate total compensation among executives may vary, to the extent these components are based on the executive’s achievement of individual goals.

 

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Due to the circumstances surrounding his return to TCF as Chief Executive Officer (discussed below), the Committee determined that Mr. Cooper would not be paid any base salary, but rather his compensation would be based almost entirely on a long-term incentive.

 

The Committee has reviewed the relationship between base salary among the Named Executives (including Mr. Nagorske, but excluding Mr. Cooper) and found it to be reasonable compared to the Peer Group.  For 2007, the Peer Group data on base salary is:

 

Average Highest Paid as % of Average Second-Highest Paid:  153%
Average Highest Paid as % of Average of Second- through Fifth-Highest Paid:  200%
Average Second-Highest Paid as % of Average of Third- through Fifth-Highest Paid:  146%

 

TCF’s 2007 base salary data is:

 

Highest Paid as % of Second-Highest Paid:  152%
Highest Paid as % of Average of Second- through Fifth-Highest Paid:  202%
Second-Highest Paid as % of Average of Third- through Fifth-Highest Paid:  149%

 

The Committee feels that the TCF pay scale is reasonable in light of this market data.

 

Analysis of Committee’s Action in July 2008

Election of William A. Cooper as Chief Executive Officer

 

Following the announcement of Mr. Nagorske’s retirement as Chief Executive Officer in July 2008, and Mr. Cooper’s subsequent election as Chief Executive Officer, the Committee met to determine Mr. Cooper’s compensation.  The Committee determined, and Mr. Cooper agreed, that he would not be paid a base salary or be eligible for an annual cash incentive.  The Committee believed in view of current conditions in the banking industry that Mr. Cooper’s interests would be best aligned with those of stockholders if his compensation was almost entirely comprised of long-term incentive.  Year 2008 was an extraordinarily difficult year for the banking industry, and the Committee expects that to continue for the next several years.  The Committee felt that Mr. Cooper should be focused on the elements of compensation that will return the Company to its former levels of profitability and maximize stockholder value, and that it may take several years for that to be accomplished.  The Committee felt that shifting current compensation (base salary and annual cash incentive) almost entirely to long-term compensation would further this objective.  Additionally, the Committee felt that, while it may be appropriate for Named Executives other than Mr. Cooper to have a short-term component to their incentive compensation, it would be preferable at this time for Mr. Cooper to not have any incentive for short-term results that may detract from long-term goals.  Accordingly, the Committee determined that Mr. Cooper’s compensation for the next three years would be comprised almost entirely of restricted stock and stock option awards.

 

The long-term incentive compensation awards provided to Mr. Cooper consist of a restricted stock award for 450,000 shares and a stock option award for 800,000 shares.  The restricted stock award vests one-third on January 1, 2010, one-third on January 1, 2011, and the remaining one-third on January 1, 2012, subject in general to Mr. Cooper’s continued employment with TCF through those dates.  In the event of Mr. Cooper’s death, disability, or retirement before vesting of the restricted stock award, a pro-rata portion of the restricted stock award will vest based on the number of months between the grant date and such death, disability, or retirement.  The option award has an exercise price of $12.85 per share (the market price of TCF stock on the date of the award) and vests one-half on January 1, 2011, and the remaining one-half on January 1, 2012, subject in general to Mr. Cooper’s continuing employment with TCF through those dates.  In the event of Mr. Cooper’s death or disability before vesting of the stock option award, a pro-rata portion of the award will continue to be subject to the vesting period, with the pro-rata portion being based on the number of months between the grant date and such death or disability. However, there is no such pro-rata vesting in the event of Mr. Cooper’s retirement before the vesting dates.

 

Vesting of the restricted stock and stock option awards over a three-year period is intended as an incentive for Mr. Cooper to focus on the Company’s long-term interests and to remain with the Company for at least three years.

 

When the restricted stock award was initially made in July 2008, it qualified as performance-based under Internal Revenue Code Section 162(m) and its vesting was contingent upon TCF achieving 15% ROE.  While TCF exceeded that threshold in 2007 (having achieved ROE of 25.73%), the Company did not achieve that threshold in 2008 (having achieved ROE of 13.14%) and is not expected to achieve that threshold in 2009.  In

 

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the economic climate that existed at the time of the award, the Committee believed a 15% ROE would constitute exemplary performance, yet did not believe the requirement was such that unnecessary or excessive risk should be necessary to achieve it.  The Committee has since concluded that 15% ROE is unlikely to be achieved in 2009, and possibly beyond, without taking unnecessary or excessive risk, and thus amended the award in January 2009 to remove the ROE requirement for vesting.  Additionally, TCF is prohibited under EESA from deducting any compensation to a Named Executive in excess of $500,000 due to its participation in the CPP, and therefore maintaining the award as performance-based no longer provides a tax benefit to TCF.  See “TCF’s Participation in the CPP” below.

 

At the time of the restricted stock award, TCF estimated the total value of the award over the 3-year performance period based on the price of TCF Stock on the date of the award ($12.85), and then discounted that value to account for the fact that no dividends will be paid on the restricted stock prior to vesting.  TCF estimated the total value of the stock option award using the Black-Scholes option-pricing model.  Based on these estimates and Peer Group data for 2007, Mr. Cooper’s total compensation ranks just below the median for all Peer Group institutions (17th when not discounted for nonpayment of dividends or risk of forfeiture, and 18th when discounted for nonpayment of dividends).

 

TCF’s Participation in the CPP

 

Effective November 14, 2008, TCF became a participant in the United States Treasury Department’s Capital Purchase Program (“CPP”) under the Emergency Economic Stabilization Act of 2008 (“EESA”).  Under EESA and Treasury Department rules, this requires the Company to comply with certain limits and restrictions concerning executive compensation throughout the time the Treasury Department holds an interest in TCF shares.

 

One such requirement concerning executive compensation is that the Committee must review senior executive officer incentive compensation with the Company’s senior risk officer to determine whether those arrangements encourage “unnecessary or excessive risks” to the Company.  This review was required to be completed no later than 90 days after the Treasury Department’s purchase of TCF shares, and must be performed annually thereafter.  The term “senior executive officer” is defined as the Chief Executive Officer, Chief Financial Officer, and the three highest compensated employees other than the Chief Executive Officer and Chief Financial Officer.  The Committee performed this review at its January 2009 meeting, the results of which are discussed below.

 

Another CPP requirement is that all bonuses and other incentive compensation arrangements with the Named Executives must provide that during the time the Treasury Department holds an equity position in TCF, the Company may recover (or “claw-back”) any payments that were based on materially inaccurate financial statements or any other materially inaccurate performance metrics used to award bonuses or incentive compensation.  Additionally, TCF is prohibited from making so-called “golden parachute” payments to Named Executives during the period the Treasury Department holds an equity position in TCF.  All employment-related agreements with the Named Executives have been amended to include these required provisions.

 

 

Key Committee Findings from the July 2008 and January 2009 Reviews

 

After its July 2008 meetings, the Committee continued its review of the executive compensation structure and the need for any changes.  After those meetings, the Chair of the Committee conducted a series of meetings and discussions with other members of the Committee and the Board, and the Chief Executive Officer, which culminated in a number of decisions that were finalized at the January 2009 Committee meeting.

 

Key findings of the Committee at its July 2008 and January 2009 meetings are:

 

 

1.     Base salaries for Named Executives (except Mr. Cooper, who does not receive a base salary) are competitive and sufficient to avoid unnecessary or excessive risk taking by the executives.

 

 

2.     Aggregate total compensation for Named Executives in 2007 was at a competitive level as compared to the Peer Group.  While he does not receive a base salary, the annual value of Mr. Cooper’s aggregate total compensation over the period of vesting under his restricted stock and stock option awards is competitive based on 2007 Peer Group data.

 

 

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3.               The performance-based elements of restricted stock awards should be eliminated because they no longer benefit the Company (discussed further below).

 

4.               The annual cash incentive should be tied to individual performance.  The Committee evaluates individual performance in its discretion based on the Chief Executive Officer’s recommendation, and contingent on the Committee’s determination that the Named Executive did not cause the Company to incur unnecessary or excessive risk.  Due to conditions in the banking industry, the Committee believes the annual cash incentive should not be tied to a corporate financial goal.

 

5.               Internal pay equity is satisfactory within the group of Named Executives.

 

6.               The employment agreements and change in control agreements should remain in place because such agreements help insure the Named Executives remain with the Company.

 

 

Analysis of Decisions Made by the Committee in January 2009

 

At its January 2009 meeting, the Committee made the following decisions concerning Named Executive compensation for 2009:

 

1.               Base Salary Levels.  In keeping with its practice of adjusting base salary infrequently and only when the levels are substantially different than market or to reflect new duties, the Committee made no changes in base salary for 2009.

 

2.               Annual Cash Incentive.  For 2008, Named Executives and certain other members of senior management were eligible to receive an annual cash incentive in an amount up to 200% of their base salary based on the Company’s achievement of 15% return on equity, and subject to the Committee’s right to exercise negative discretion based on the executive’s achievement of individual goals.  (Mr. Cooper was not eligible for any portion of the 2008 cash incentive.)  The Committee determined that TCF did not achieve 15% ROE for 2008, and therefore no Named Executive earned a cash incentive for 2008.

 

For 2009, the Committee determined that the annual cash incentive for Named Executives (except Mr. Cooper) would be discretionary based on individual performance.  As previously noted, the Committee anticipates the next few years will be extraordinarily difficult for the banking industry and believes that conditioning the cash incentive on achievement of a corporate financial goal is not likely to achieve the desired purpose because of the high degree of uncertainty that any such goal is attainable.  Additionally, the Committee did not want to establish any particular financial goals for Named Executives that might be construed as encouraging unnecessary or excessive risk taking.

 

While in past years a corporate financial goal was necessary to qualify compensation as “performance-based” under Internal Revenue Code Section 162(m), thus enabling TCF to deduct compensation in excess of $1 million, the Company is now prohibited under EESA from deducting any compensation to a Named Executive in excess of $500,000 due to the Company’s participation in the CPP (see “TCF’s Participation in the CPP” on page 27).  Therefore, the corporate financial goal no longer provides the tax benefit to TCF that it once did.

 

The Chief Executive Officer will subjectively determine the incentive for each Named Executive based on his evaluation of the executive’s performance, subject to final approval by the Committee.  The Chief Executive Officer and Committee have sole discretion in making their determinations and in reducing or withholding the bonus to any executive if either determines that the executive caused the Company to incur unnecessary or excessive risk.  The Committee expects to review individual performance periodically and make a determination regarding the 2009 cash incentive at the end of 2009.

 

3.               Year 2006 Stock Awards.  The number of shares that vest under the restricted stock award granted to executives in 2006 (the “Year 2006 Stock Awards”) was tied to year-over-year increases in earnings-per-share during each of the years 2006, 2007, and 2008, in excess of the base EPS (for 2005) of $2.00.  The Committee determined in 2007 that no portion of the award was earned for 2006.  The Committee determined in 2008 that, for Messrs. Nagorske, Brown, and Pulles, 7% of the award was earned for 2007, and for Mr.

 

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Jasper that 10% of the award was earned for 2007.  The Committee determined in 2009 that TCF did not achieve EPS in excess of $2.00 per share for 2008, and therefore that no portion of the award was earned in 2008.  Any shares that were not earned by the end of 2008 were forfeited on January 31, 2009.  Shares that were earned will vest on January 31, 2011.

 

4.               Additional Long-Term Incentive.  In January 2009, the Committee made the following restricted stock awards to current Named Executives (except Mr. Cooper), one-third of which will vest on January 1 of each year over the 3-year period 2010 through 2012:

 

Named Executive Restricted Stock Awards

 

 

 

 

Named Executive

 

 

Restricted Stock
Award (Shares)

Thomas F. Jasper

 

 

 

22,000

 

Neil W. Brown

 

 

 

33,000

 

Gregory J. Pulles

 

 

 

25,000

 

Other Executives

 

 

 

210,000

 

 

The Committee concluded that there was no further value to be achieved from the Year 2006 Stock Awards, as they have expired with limited (approximately 7%; Mr. Jasper 10%) shares earned, and believes the stock options awarded to Named Executives in 2008 have limited value, as the exercise price of those stock options ($15.75 per share) is well above the recent range of Company share prices.  The Committee therefore concluded that in current circumstances, considering the lack of 2008 incentive, that it should provide additional restricted stock awards with three-year vesting.

 

The Committee has determined that no dividends will be paid in connection with the 2008 restricted stock awards or future restricted stock awards to Named Executives until they vest because the Committee has concluded that the award should be vested before dividends are paid.

 

5.               Amendments to Existing Long-Term Incentives.  The Committee determined that vesting of restricted stock awards granted to Named Executives in 2008, including Mr. Cooper, should no longer be tied to a corporate financial goal or any other specific performance target.  As previously noted, the Committee does not believe that tying the incentive to a corporate financial goal in the current environment in the banking industry is likely to achieve the desired purpose.  In the case of Mr. Cooper, his compensation is almost entirely in the form of restricted stock and stock option awards, as he gets no salary or cash incentive, resulting in a risk (unacceptable in the Committee’s view) that he receives no compensation for managing the Company over the next three years.  The Committee believed it was preferable from the standpoint of stockholder interest to amend his award (and that of other Named Executives) to eliminate the corporate financial goal as opposed to other alternatives, such as restructuring his compensation to include a base salary.  Additionally, the Committee did not want to maintain any particular financial goals for Named Executives that might be construed as encouraging unnecessary or excessive risk taking.

 

As previously noted, a corporate financial goal was necessary in past years to qualify compensation as “performance-based” under Internal Revenue Code Section 162(m), thus enabling TCF to deduct compensation in excess of $1 million. TCF is now prohibited under EESA from deducting any compensation to a Named Executive in excess of $500,000 due to TCF’s participation in the CPP.  Therefore, the corporate financial goal no longer provides the tax benefit to TCF that it once did.

 

6.               Total Compensation Package.  The Committee concluded that Mr. Cooper’s total compensation for 2009, consisting almost entirely of restricted stock and stock options awarded in 2008, is both competitive and not excessive in relationship to the latest Peer Group information.  The Committee believes the 2008 compensation and the target 2009 compensation for the other Named Executives are competitive and in line with Peer Group performance.  The Committee also believes that pay is appropriately aligned within the executive group.   

 

The Committee’s decisions on compensation recognize the significant issues existing for financial institutions in the current and anticipated economic environment, including mortgage defaults, decline in housing prices, other credit

 

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defaults, other bank failures, unemployment rates, and special factors for individual markets, such as the economy in Michigan.  TCF executives have, for the most part, avoided the major mistakes of other financial institutions, but nonetheless must deal with the circumstances created by these other institutions.  The Committee wants to keep the Company’s executives focused on credit quality, deposit growth, and customer retention, and believes that the volatile environment that now exists makes the establishment of numeric financial goals inappropriate as a basis for the annual cash incentive.  The results of these efforts can only be judged and evaluated after the full year 2009 is completed.  For that reason, the annual cash incentive will be discretionary and each executive will be evaluated at year end.  To further focus executives on long-term growth and profitability, the stock grants in January 2009 will vest over three years — this will assure that those executives who continue to perform earn stock compensation only based upon long-term results.  With an experienced Chief Executive Officer and the review and approval of annual bonuses and other elements of compensation by the Committee, the Board considers this the best way of determining executive compensation for 2009.

 

In February 2009, Congress enacted amendments to EESA requiring the Treasury Department to adopt rules that may require changes to Name Executive compensation in 2009 or thereafter.  The EESA amendments include expansion of individuals subject to the “claw-back” provisions, expanded prohibitions on golden parachute payments, and additional limits on performance-based compensation plans.  The amendments also limit bonuses, retention awards and incentive compensation payments to executives.  The Committee will review the implementing rules when they are available and consider any changes to the terms of existing employment, change-in-control, restricted stock, stock option agreements, and long-and short-term incentive compensation arrangements with the Named Executives as it deems advisable to comply with the rules.  The Committee may consider such additional changes to Named Executive compensation as it deems advisable to accomplish the objectives of the Company’s executive compensation program, namely to attract and retain experienced and highly qualified executives critical to the Company’s long-term success and enhancement of shareholder value.

 

ADDITIONAL INFORMATION

 

Employment and Change in Control Agreements

 

Of the Named Executives, TCF has employment contracts with Messrs. Brown and Pulles and change in control agreements with Messrs. Jasper, Brown, and Pulles. While he does not have a separate change in control agreement, change in control provisions are provided for in Mr. Cooper’s restricted stock and stock option agreements.  The agreements are submitted to and approved by the Committee.

 

The Committee is aware of the TCF Stock ownership of the current Named Executives, which is substantial and which has accumulated over many years.  The Committee believes that payments in the event of a termination or change in control are necessary despite this wealth accumulation.  The primary purpose for the employment agreements is to help ensure the current Named Executives remain with the Company, as the Committee believes that the retention of experienced, highly qualified executives is necessary to remain competitive.  The purpose for the change in control agreements is first to help ensure that the current Named Executives remain with the Company, and second to help ensure that the current Named Executives keep the stockholders’ interests paramount in connection with any possible business combination.

 

In addition to the change in control provision described on page 46, the terms of Mr. Cooper’s restricted stock award, as modified as described above, provide that in the event of Mr. Cooper’s termination of employment for cause, retirement or voluntary resignation, any restricted stock that has not vested at the time of termination, retirement or resignation will be forfeited.  In the event Mr. Cooper terminates his employment for “good reason” or if the Company terminates his employment

 

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without cause, the restricted stock will not be forfeited but will continue to be subject to the vesting provisions (i.e., one-third on January 1, 2010, one-third on January 1, 2011, and one-third on January 1, 2012).  In the event of Mr. Cooper’s disability or death, he will be entitled to a pro-rata portion of the restricted stock that has not yet vested, with the pro-rata portion of the award continuing to be subject to the vesting provisions of the award and with the remaining unvested portion being forfeited.

 

In addition to the change in control provision described on page 46, the terms of Mr. Cooper’s stock option award provide that in the event of Mr. Cooper’s retirement, voluntary resignation or termination by the Company for cause before January 1, 2012, any unvested stock options will expire.  The stock options will not expire due to the termination by Mr. Cooper of his employment for “good reason,” or if the Company terminates his employment without cause, but they will continue to be subject to the vesting provision of such award (i.e., 50% on January 1, 2011, and 50% on January 1, 2012).  In the event of Mr. Cooper’s disability or death prior to January 1, 2012, he will be entitled to a pro-rated portion of the stock options.

 

In the case of Mr. Cooper’s change in control benefits, the Committee believes stockholder interests are best served if possible combinations involving the Company are evaluated without regard to his employment status following consummation of the transaction.  The other current Named Executives have the right to leave the Company and receive their change in control benefit in the form of a cash payment within a thirty-day window that begins immediately preceding the first anniversary of the closing date.  This provision requires the individual to provide service for at least a year following the change in control and ensures that the individual provides the acquirer the opportunity to establish a relationship.  The Committee determined that it was not essential from a retention standpoint to give individuals below the Chief Executive Officer the same termination rights and that they should not have absolute discretion to leave the Company immediately after an acquisition.

 

Upon their separation from the Company, Mr. Nagorske and Ms. Lex were paid the benefits as described on pages 37, 43, and 45, pursuant to their employment agreements in effect prior to the time of their separation.

 

As noted above under “TCF’s Participation in the CPP,” all employment-related agreements with the current Named Executives have been amended to prohibit “golden parachute” payments during the period the Treasury Department holds an equity position in the Company.

 

The tables on page 44 of this proxy statement summarize potential payments under the employment and change in control contracts.

 

Benefits, Retirement and Deferred Compensation Philosophy

 

TCF considers benefits to be an employee hiring and retention matter, for both executives and non-executive employees, and therefore designs its program to be competitive with other institutions generally.  Benefits are designed to reward longevity with the Company.  There is no target level of income for the retirement program for either executives or non-executive employees.  Named Executives generally have the same benefits as those provided for full-time employees.

 

Medical, etc. BenefitsNamed Executives are eligible for the same group medical, dental, life insurance, and other benefits as is available to TCF full-time employees generally.

 

Employees Stock Purchase Plan and ESPP Supplemental Plan.  TCF offers the Employees Stock Purchase Plan in which employees can contribute from 0 to 50% of their pay to the Employees Stock Purchase Plan, with matching contributions on the first 6% of pay contributed.  The match is 50%, 75%, or 100% of each dollar contributed, depending on length of service with TCF.  The plan qualifies as an employee stock ownership plan (“ESOP”) and a qualified tax or deferred compensation plan (“401(k) Plan”) under the Internal Revenue Code.  Named Executives can contribute the same percentage of pay as non-executives and receive the same match percentage based on length of service with TCF.  A Named Executive’s length of service for this purpose includes only actual time of service with TCF and is calculated in the same way as for employees generally.

 

Most of the Named Executive contributions and Company matching contributions under the Employees Stock Purchase Plan are limited by the Internal Revenue Code.  All amounts contributed over the statutory limit are credited to a nonqualified supplemental plan (the “ESPP Supplemental Plan”) which generally “mirrors” the operation of the Employees Stock Purchase Plan.  This ESPP Supplemental Plan, which was approved by stockholders in 2005, covers a total of approximately 240 employees and also helps the Employees Stock Purchase Plan to pass certain nondiscrimination tests.  The Committee approves and maintains the ESPP Supplemental Plan as a matter of fairness for the Named Executives so they can contribute as much, as a percentage of pay, as non-executives and receive the corresponding employer matching contributions.

 

The following chart illustrates the operation of the Employees Stock Purchase Plan and its related ESPP Supplemental Plan for an executive with $600,000 in salary and bonus who contributes 6% to the two plans combined and whose contributions are matched at the 100% rate:

 

31



 

Illustration of Operation of Employees Stock Purchase Plan and ESPP Supplemental Plan

 

 

 

 

Employees Stock
Purchase Plan

 

 

ESPP Supplemental
Plan

 

 

Total Contributions

 

Employee Contribution

 

 

 

$ 11,500

(1)

 

 

 

$24,500

(2)

 

 

 

$36,000

 

 

Employer Match (100%)

 

 

 

$ 11,500

 

 

 

 

$24,500

 

 

 

 

$36,000

 

 

Total

 

 

 

$ 23,000

 

 

 

 

$49,000

 

 

 

 

$72,000

 

 


Additional factors will affect the exact calculations.

 

(1)             Limited to 5% of covered pay ($230,000) in 2008.  Will be limited to 5% of covered pay ($245,000) in 2009.

(2)             Equals 6% of total salary and bonus ($600,000) less Employee Contribution to Employees Stock Purchase Plan ($36,000 - $11,500 = $24,500).

 

None of the Named Executives has any individual or special retirement or pension arrangements with the Company.  None of the Named Executives or any other participants are credited under the Employees Stock Purchase Plan or the ESPP Supplemental Plan with any years of service other than for years worked at TCF.  Covered pay consists only of salary and bonus; it does not include stock grants made to Named Executives or other special items of executive pay.

 

TCF’s Employees Stock Purchase Plan and ESPP Supplemental Plan are designed to encourage investment in TCF Stock and more than 83% of their assets are invested in TCF Stock.  The following chart reflects Named Executive investment in TCF Stock in these programs as of December 31, 2008:

 

TCF Stock Ownership and Account Balances of the Named Executives

in the Employees Stock Purchase Plan and ESPP Supplemental Plan

 

 

 

 

Number of Whole
Shares of TCF Stock in Accounts

 

 

Value of Accounts at December 31, 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TCF Stock in Accounts(1)

 

Non-TCF Stock Investments in Accounts

 

Total Account Value

William A. Cooper (2)

 

 

 

0

 

 

 

$

0

 

 

$

0

 

 

$

0

 

Lynn A. Nagorske

 

 

 

83,169

 

 

 

$

1,136,080

 

 

$

0

 

 

$

1,136,080

 

Thomas F. Jasper

 

 

 

7,957

 

 

 

$

108,690

 

 

$

46,310

 

 

$

155,000

 

Neil W. Brown

 

 

 

28,765

 

 

 

$

392,940

 

 

$

29,150

 

 

$

422,090

 

Candace H. Lex

 

 

 

5,529

 

 

 

$

75,530

 

 

$

0

 

 

$

75,530

 

Gregory J. Pulles

 

 

 

98,716

 

 

 

$

1,348,460

 

 

$

0

 

 

$

1,348,460

 


(1)             Reflects number of shares of TCF Stock (including partial shares not shown in the table and deemed shares in the ESPP Supplemental Plan) multiplied by $13.66 per share, the closing price on December 31, 2008, and rounded to the nearest $10.

(2)             Mr. Cooper is not a participant in the Employees Stock Purchase Plan and ESPP Supplemental Plan.

 

Pension Plan.  TCF discontinued pay credits to its pension plan and related supplemental plan in 2006 in connection with the enhancements to the Employees Stock Purchase Plan.  The Pension Supplemental Program was amended in October 2008 to require the distribution of all participants’ accounts in 2009.  Pension benefits are disclosed in the table on page 40 and described in the information following the table.

 

 

Deferred Compensation Plan

 

Named Executives were allowed to defer salary, bonus, and stock awards to the TCF Executive Deferred Compensation Plan (“Deferred Compensation Plan”) and to invest them in TCF Stock or other investments.  The Company philosophy was that this was a tax-deferred savings account — there was no Company match and no

 

32



 

guaranteed or above-market earnings or interest were paid on accounts.  TCF fully funded a related trust (a so-called “rabbi” type of trust) with corresponding assets, almost all TCF Stock, to provide the benefits when due.    The plan was frozen effective January 1, 2005, in response to the enactment of IRC section 409A and was subsequently terminated on October 20, 2008.  Mr. Nagorske, after retirement, was paid his deferred compensation.  Mr. Brown and Mr. Pulles received a lump sum payment shortly after termination of the plan.

 

 

Tax Considerations

 

Although the Company historically intended that compensation either qualify as performance-based or deferred, as necessary, such that compensation would not exceed the tax deduction limits of the Internal Revenue Code, the Company may pay compensation that is not deductible.  Deductibility of compensation may be adversely affected by factors outside the Company’s control, such as legislation relating to deferred compensation distributions or other aspects of compensation.

 

Additionally, TCF is prohibited under EESA from deducting compensation for any Named Executive under Internal Revenue Code Section 162(m) to the extent such compensation exceeds $500,000 during any portion of a year in which the Treasury Department holds an interest in Company shares, even if the compensation qualifies as “performance-based.”  Therefore, a portion of the annual cash incentive for any Named Executive and the restricted stock and stock options awarded to any Named Executive in 2008 may not be deductible for 2008, 2009, and any other year in which the Treasury Department holds an interest in Company shares to the extent those incentives and awards exceed $500,000.  However, the Company may pay an annual cash incentive or other form of compensation to any Named Executive even if the payment is not tax-deductible.

 

Another CPP requirement is that the Company is prohibited from making so-called “golden parachute” payments to Named Executives during the period the Treasury Department holds an equity position in the Company.  All employment-related agreements with the Named Executives have been amended to include these required provisions.

 

 

Recovery of Performance-Based Compensation

 

The Sarbanes-Oxley Act requires recovery of certain incentive and equity compensation from the Principal Executive Officer and Principal Financial Officer in the event of restatement of financial results due to misconduct. The Audit Committee is responsible for determining if bonus or stock compensation paid to the Principal Executive Officer or Principal Financial Officer should be recovered in the event of a restatement.

 

Pursuant to Treasury Department regulations, all bonuses and other incentive compensation arrangements with TCF’s senior executive officers have also been amended to provide that during the time the Treasury Department holds a position in Company shares under the CPP, the Company may recover any payments that were based on materially inaccurate financial statements or any other materially inaccurate performance metrics used to award bonuses or incentive compensation.  (See “TCF’s Participation in the CPP” on page 27.)

 

 

Safeguards Against Unnecessary or Excessive Risk

 

Under the provisions of the CPP, the Company must comply with certain requirements regarding executive compensation throughout the time the Treasury Department holds on interest in Company shares.

 

One such requirement is that the Committee must review senior executive officer incentive compensation with the Company’s senior risk officer to ensure that those arrangements do not encourage “unnecessary or excessive risks” that threaten the value of the Company.   This must be done no later than 90 days after the Treasury Department’s purchase of Company shares.  Thereafter, the Committee must meet at least annually with the senior risk officer to discuss and review the relationship between the Company’s risk management policy and practices and the senior executive officer incentive compensation arrangements.  The term “senior executive officer” is defined as the Chief Executive Officer, Chief Financial Officer, and the three most highly compensated employees other than the Chief Executive Officer and Chief Financial Officer.

 

33



 

The Committee met with the Company’s senior risk officer in January 2009 and has concluded that:

 

·                  The risks to which TCF is subject can be categorized as credit risk, interest rate risk, price risk, liquidity risk, foreign currency translation risk, transaction risk, compliance risk, strategic risk and reputation risk, with the most significant risks identified as credit quality risk and interest rate risk.

 

·                  Base salaries are a sufficient percentage of total compensation (about 50%) to discourage unnecessary or excessive risk taking by senior executive officers.

 

·                  The annual cash incentive program for senior executive officers does not encourage unnecessary or excessive risk, as the incentive can be reduced or withheld if the Committee determines an executive has caused the Company to incur such risk.

 

·                  Restricted stock and stock options awarded by the Company do not encourage unnecessary or excessive risk because they are vested over a period of time that focuses the executive on the Company’s long-term interests.

 

·                  Anticipated holdings by TCF executives of significant amounts of Company stock through their employment, and historically well into retirement, provide considerable incentive for them to consider the Company’s long-term interests while still employed.

 

In making the foregoing determinations, the firm of Towers Perrin was engaged to provide advice on the Committee’s process for determining whether executive incentive compensation encourages unnecessary or excessive risk.

 

The Committee has concluded that the overall compensation structure for senior executive officers does not encourage unnecessary or excessive risk taking by the executives.  While the variable elements of compensation are, on the one hand, a sufficient percentage of overall compensation to motivate executives to produce superior results, the fixed element on the other hand, at about 50% of total compensation, is also a sufficiently high percentage of overall compensation that the Committee does not feel that unnecessary or excessive risk taking is encouraged by the variable elements.

 

The Committee has also concluded that the short-term component of TCF’s executive incentive compensation plan (annual cash incentive) does not encourage unnecessary or excessive risks to the Company.  The Chief Executive Officer will subjectively determine the incentive based on his evaluation of the executive’s performance, subject to final approval by the Committee.  The Chief Executive Officer and Committee have sole discretion in making their determinations, and in reducing or withholding the bonus to any executive if either determines that the executive caused the Company to incur unnecessary or excessive risk.  For these reasons, the Committee does not believe the short-term component of executive compensation encourages unnecessary or excessive risk.  Mr. Cooper is not eligible for a cash incentive in 2009.

 

The Committee also notes that a short-term component similar to the current one (but tied in its entirety to a corporate financial goal) has been in place for many years, and there is no evidence it has encouraged unnecessary or excessive risk taking.  For example, TCF’s bonus plans have not encouraged executives to assume excessive or unnecessary credit risk, such as by entering the sub-prime lending business, syndications, or derivative transactions, and they declined to do so despite the temptation of higher short-term profits that might have resulted from such business activities.  Additionally, while there is a short-term component to the incentive compensation plans for other senior executive officers, there is none for the Chief Executive Officer.  His incentive compensation is entirely long-term in nature, and the Committee does not believe strategies that benefit the Company in the short-term will be encouraged or tolerated if they would be to the Company’s long-term detriment.

 

The Committee has also concluded that the long-term component of TCF’s executive incentive compensation plan consisting of restricted stock and stock option awards does not encourage unnecessary or excessive risks to the Company.  In the Committee’s view, an unearned and unvested stock or stock option award should be outstanding for each executive at all times to serve as an incentive to remain with the Company and to focus the executive on all elements of Company performance that influence long-term share price appreciation, including losses attributable to

 

34



 

the most significant risks facing the Company.  Vesting requirements over a three-year or four-year period for the restricted stock and stock option awards encourage executives to avoid short-term actions that are to the Company’s long-term detriment.  The Committee’s elimination of the corporate financial goal as a vesting requirement further assures that the long-term incentive does not encourage unnecessary or excessive risk.

 

The Committee considered several other factors that will tend to discourage unnecessary or excessive risk taking by senior executive officers.  Historically, TCF executives have continued to hold a significant amount of Company stock well past retirement, and the Committee anticipates this will continue for current executives who are approaching retirement age.   These substantial holdings by Company executives of TCF Stock, both before and after they retire, subject them to the possibility of significant market penalties in the event they make decisions that benefit the Company in the short-term but ultimately prove detrimental to the Company’s long-term interests.  The Committee does not believe it is necessary to impose a minimum stock ownership or holding period requirement due to these significant holdings by Company executives.

 

Pursuant to Treasury Department regulations, both the short-term and long-term components of TCF’s executive incentive compensation plans are subject to new claw-back and golden parachute restrictions.  As a condition to TCF’s participation in the CPP, all bonuses and other incentive compensation arrangements with the senior executive officers have been amended to provide that during the time the Treasury Department holds an equity position in the Company, the Company may recover (or “claw-back”) any payments that were based on materially inaccurate financial statements or any other materially inaccurate performance metrics used to award bonuses or incentive compensation.  The claw-back requirement should act as a disincentive to any executive from manipulating financial statements or performance metrics in a way that would assure payment of a bonus award, increase a bonus, assure vesting of a restricted stock award, or increase the value of a restricted stock or stock option award.  All employment-related agreements with the senior executive officers have also been amended to prohibit golden parachute payments during the period the Treasury Department holds an equity position in the Company.  For these purposes, a “golden parachute payment” is defined as any compensation payments to a senior executive officer due to: (1) involuntary termination of employment, including termination by the Company with or without cause and voluntary termination by the executive for good reason, or (2) in connection with any bankruptcy filing, insolvency, or receivership of the Company.  Limits on golden parachute payments in the event of involuntary termination of employment likewise deter any behavior not in the Company’s best interests.

 

The Compensation Committee certifies that it has reviewed with the senior risk officer the senior executive officer (“SEO”) incentive compensation arrangements and has made reasonable efforts to ensure that such arrangements do not encourage the SEO to take unnecessary and excessive risks that threaten the value of the financial institution.  The Compensation Committee also certifies that it has met to discuss and review the relationship between TCF Financial’s risk management policies and practices and SEO incentive compensation arrangements.

 

 

 

COMPENSATION COMMITTEE REPORT

 

The Compensation Committee has reviewed the preceding Compensation Discussion and Analysis and discussed it with management.  Based on its review and discussion, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in TCF’s proxy statement.

 

BY THE COMMITTEE:

 

Ralph Strangis, Chair

 

William F. Bieber

 

Theodore J. Bigos

Rodney P. Burwell

 

Luella G. Goldberg

 

Gerald A. Schwalbach

 

35


 


 

SUMMARY COMPENSATION TABLE

 

The following summary compensation table (the “Summary Compensation Table”) identifies the cash and non-cash compensation awarded to or earned by the Named Executives in 2006, 2007, and 2008.

 

Summary Compensation Table

 

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)

Name and
Principal Position
at December 31, 2008

Year

Salary
(1)

Bonus
(2)

Stock Awards
(3)

Option Awards
(5)

Non- Equity
Incentive
Plan
Compensation
(6)

Change in Pension Value and
Nonqualified
Deferred
Compensation
Earnings
(7)

All Other
Compensation
(11)

Total

William A. Cooper

2008

$

0

 

$0

$

2,007

 

$

368,629

 

$

0

 

$

13,800

 

$

171,575

 

$

556,011

 

Director, Principal

 

 

 

 

 

 

(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Executive Officer (8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lynn A. Nagorske (8) 

2008

$

438,861

 

$0

$

85,534

 

$

248,891

 

$

0

 

$

45,989

 

$

4,431,730

 

$

5,205,016

 

Former Director,

2007

$

700,024

 

$0

$

188,238

 

$

0

 

$

1,400,000

 

$

22,366

 

$

167,066

 

$

2,477,694

 

Principal Executive Officer

2006

$

695,408

 

$0

$

114,077

 

$

0

 

$

0

 

$

73,549

 

$

138,861

 

$

1,021,895

 

Thomas F. Jasper (8)

2008

$

250,000

 

$0

$

110,008

 

$

146,325

 

$

0

 

$

146

 

$

45,810

 

$

552,289

 

Principal Financial

2007

$

248,625

 

$0

$

114,256

 

$

0

 

$

500,000

 

$

0

 

$

29,716

 

$

892,597

 

Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Neil W. Brown

2008

$

460,018

 

$0

$

19,072

 

$

292,648

 

$

0

 

$

8,558

 

$

172,758

 

$

953,054

 

President, Chief

2007

$

460,018

 

$0

$

73,510

 

$

0

 

$

920,000

 

$

5,452

 

$

128,975

 

$

1,587,955

 

Operating Officer

2006

$

398,087

 

$0

$

70,441

 

$

0

 

$

0

 

$

30,930

 

$

69,594

 

$

569,052

 

Candace H. Lex (8) (9) (10)

2008

$

200,000

 

$0

$

0

 

$

0

 

$

0

 

$

0

 

$

738,865

 

$

938,865

 

Former Chief Marketing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gregory J. Pulles

2008

$

350,012

 

$0

$

17,338

 

$

163,966

 

$

0

 

$

34,026

 

$

93,819

 

$

659,161

 

Vice Chairman and

2007

$

350,012

 

$0

$

75,244

 

$

0

 

$

700,000

 

$

26,606

 

$

51,619

 

$

1,203,481

 

General Counsel

2006

$

349,319

 

$0

$

65,240

 

$

0

 

$

0

 

$

61,905

 

$

52,695

 

$

529,159

 


(1)    Base salaries were last adjusted in January 2006, except Mr. Brown’s base salary was adjusted in January 2007 when he was appointed President.  Mr. Cooper does not receive a salary.

(2)    There are no guaranteed or discretionary bonuses.  Any annual cash incentive paid to the Named Executives is performance-based, is included in column (g) “Non-Equity Incentive Plan Compensation,” and is discussed in further detail on page 20 under the heading “Annual Cash Incentive.”  Mr. Cooper does not receive an annual cash incentive.

(3)    Consists of restricted stock award expense for the Named Executives other than Mr. Cooper, computed in accordance with FAS 123R.  Dividends are paid on the Named Executives’ stock awards made prior to 2008 at the same rate as paid to stockholders generally ($1.00 per share in 2008); however, no dividends are paid in connection with the stock awards made in 2008 until they vest.  TCF’s accounting policy and assumptions for stock-based compensation are described in Note 1 to TCF Financial’s Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 31, 2008.

(4)     Consists of the stock award expense for Mr. Cooper’s director stock award of 797 shares, as computed in accordance with FAS 123R.  Mr. Cooper received such award on January 23, 2006, for his service as a director prior to his appointment as Chief Executive Officer.  Mr. Cooper no longer receives any compensation for his service as Director.

(5)    Amounts shown consist of option expense for the Named Executives computed in accordance with FAS 123R.  TCF’s accounting policy and assumptions for stock-based compensation are described in Note 1 to TCF Financial’s Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 31, 2008.

(6)    For an explanation of the annual cash incentive program, refer to the description on page 20 under the heading “Annual Cash Incentive.”

(7)    Change in pension value as reported by the actuaries of the pension program.  Pay credits to the pension program were discontinued effective April 1, 2006; however, interest credits continue to be credited.  There were no above-market or preferential earnings on TCF’s nonqualified deferred compensation plans.

 

36



 

(8)    Mr. Cooper was hired as Chief Executive Officer effective July 26, 2008.  Mr. Jasper was not a Named Executive in 2006.  Ms. Lex was not a Named Executive in 2006 and 2007.  Mr. Nagorske was employed through August 6, 2008, and Ms. Lex was employed through December 31, 2008.

(9)    Ms. Lex was employed by TCF through 2008.  Upon termination, Ms. Lex did not retain any stock awards or stock options pursuant to the terms of her agreements and therefore TCF did not recognize any expense for financial statement reporting purposes.

(10)   As of December 31, 2008, Ms. Lex had no pension benefit because she joined the Company after the Plan was frozen.

(11)   Includes perquisites and Company matching contributions to the TCF Employees Stock Purchase Plan (“ESPP Plan”) and its related ESPP Supplemental Plan and other payments, as follows:

 

Detail of “All Other Compensation” Column

 

 

 

Employer
Matching Contributions

 

 

Name

Perquisites(a)

ESPP
Plan
(b)

ESPP
Supplemental
Plan

Other
Payments
(c)

Total

William A Cooper

 

$

144,242

 

 

$

0

(d)

 

$

         0

(d)

 

$

27,333

 

$

171,575

Lynn A. Nagorske

 

$

177,400

 

 

$

11,500

 

 

$

98,830

 

 

$

4,144,000

 

$

4,431,730

Thomas F. Jasper

 

$

12,060

 

 

$

8,625

 

 

$

25,125

 

 

$

0

 

$

45,810

Neil W. Brown

 

$

108,269

 

 

$

8,625

 

 

$

55,864

 

 

$

0

 

$

172,758

Candace H. Lex

 

$

4,197

 

 

$

5,750

 

 

$

12,250

 

 

$

716,668

 

$

738,865

Gregory J. Pulles

 

$

30,819

 

 

$

11,500

 

 

$

51,500

 

 

$

0

 

$

93,819


(a)     All of the Named Executives were eligible to receive the following perquisites, none of which individually exceeded $25,000 in 2008: imputed life insurance, executive tax service, personal use of club memberships, personal use of company car, and executive physical.  In addition, four executives received personal use of company aircraft in the following amounts (calculated on a pre-tax basis): Mr. Cooper – $141,708; Mr. Nagorske – $64,876; Mr. Brown – $95,060; and Mr. Pulles – $5,096.  These amounts are the aggregate incremental cost of non-business travel use, as determined based on the average weighted cost of fuel and maintenance, crew travel expenses, on-board catering expense, landing fees, trip-related hangar/parking costs and smaller variable costs.  In the event that an executive’s spouse or family member may accompany the executive on a flight, the above amounts also include any incremental costs, such as for on-board catering costs that may be associated with such travel.  Mr. Nagorske’s perquisites include $105,000 in club membership equity.

(b)       Employer matching contributions to the Employees Stock Purchase Plan were limited in 2008 to 100% the IRC limit of 5% of covered compensation of $230,000.  The balance of the employer matching contributions in 2008 was made to the ESPP Supplemental Plan, as shown in the table.

(c)     Includes separation payments to Mr. Nagorske and Ms. Lex as well as Director fees for Mr. Cooper incurred while he was an outside Director.

(d)       Mr. Cooper does not participate in the ESPP Plan or ESPP Supplemental Plan.

 

Provisions of the Employment Agreements of the Principal Executive Officer and the other Named Executives are described on pages 30 and 31.  The relationship of salary to the Named Executives’ Total Compensation will vary from year to year primarily depending on the amount of Non-Equity Incentive Compensation (Annual Cash Incentive) and Stock Award expense.

 

37



 

GRANTS OF PLAN-BASED AWARDS IN 2008

(Includes Cash and Equity Awards)

 

The following table shows awards made to the Named Executives in the year 2008:

 

 

 

Estimated
Possible
Payouts
Under
Non-Equity
Incentive Plan

Estimated Possible
Payouts Under Equity
Incentive Plan Awards
(2)

All Other
Option
Awards:
Number of
Securities
Underlying

Exercise or
Base Price
of Option
Awards

Grant Date Fair
Value of Stock
and Option

Name

Grant
Date

Awards
(1)

Threshold
(#)

Target
(#)

Options (3)
(#)

(4)
($/Sh)

Awards
(5)

William A. Cooper

7/31/2008

 

$

0

 

 

 

 

 

 

7/31/2008

 

 

150,000

450,000

 

 

 

$

4,673,927

 

 

7/31/2008

 

 

800,000

 

$

12.85

 

 

$

2,508,000

 

Lynn A. Nagorske

1/21/2008

 

$

1,400,000

 

 

 

 

 

 

 

1/21/2008

 

 

 

67,035

 

$

15.75

 

 

$

248,891

 

Thomas F. Jasper

1/21/2008

 

$

500,000

 

 

 

 

 

 

 

1/21/2008

 

 

 

141,000

 

$

15.75

 

 

$

523,815

 

Neil W. Brown

1/21/2008

 

$

920,000

 

 

 

 

 

 

 

1/21/2008

 

 

 

282,000

 

$

15.75

 

 

$

1,047,630

 

Candace H. Lex

1/21/2008

 

$

400,000

 

 

 

 

 

 

 

1/21/2008

 

 

 

38,000

 

$

15.75

 

 

$

141,170

 

Gregory J. Pulles

1/21/2008

 

 

 

  13,000

  26,000

 

 

 

$

317,309

 

 

1/21/2008

 

$

700,000

 

 

 

 

 

 

 

1/21/2008

 

 

 

158,000

 

$

15.75

 

 

$

586,970

 


(1)       Amounts represent the potential target bonus under the annual cash incentive program as described on page 20 under the heading “Annual Cash Incentive.”  The award is entirely at the discretion of the Committee and none of the Named Executives earned or received cash incentive payments for 2008; see column (g) of the Summary Compensation Table on page 36.

(2)    Award represents a stock grant made to Mr. Pulles on January 21, 2008 as described on page 20 under the heading “Elements of Executive Compensation,” and a grant made to Mr. Cooper on July 31, 2008 as described on page 26 under the heading “Analysis of Committee’s Action in July 2008.”  In 2009, the Committee removed the performance goals for these awards as discussed on page 29; however these awards remain subject to the vesting requirements.  No dividends are paid on these awards until they vest.  The maximum award is the same as the target amount.

(3)    On January 21, 2008, the Committee granted stock options to Messrs. Nagorske, Jasper, Brown, Pulles, and Ms. Lex as described on page 20 under the heading “Elements of Executive Compensation.”  On July 31, 2008, the Committee granted stock options to Mr. Cooper as described on page 26 under the heading “Analysis of Committee’s Actions in July 2008.”  Except for Mr. Nagorske, the stock options vest in two installments: 50% on January 1, 2011, and 50% on January 1, 2012.  Upon Mr. Nagorske’s retirement, he retained 67,035 option shares of which 38,306 will vest (and become exercisable) on January 1, 2011, and 28,729 will vest (and become exercisable) on January 1, 2012.  Ms. Lex did not retain any stock options upon her termination of employment, pursuant to the terms of her agreement.

(4)    No stock options were re-priced or materially modified during the fiscal year.

(5)    Amounts shown consist of the number of shares awarded (from previous columns) multiplied by grant date values computed in accordance with FAS 123R.  Equity incentive plan awards for Mr. Cooper vest in three equal parts: the first installation is valued at $11.3668 per share; the second at $10.3802 per share; and the third at $9.4124 per share.  Mr. Cooper’s stock options vest in two equal installments: the grant date fair value for the first installment is $3.11 per share; the second is $3.16 per share.  Mr. Pulles’ equity award vests in two equal parts: the first half has a grant date fair value of $12.7235 per share; the second half at $11.6849 per share.  For Mr. Nagorske’s stock options that vest on January 1, 2011 (38,306 shares), the grant date fair value is $3.70 per share; and for the stock options that vest on January 1, 2012 (28,729 shares), the grant date fair value is $3.73 per share.  The stock options for Messrs. Jasper, Brown, Pulles, and Ms. Lex vest in two equal installments with grant date fair values pf $3.70 and $3.73 per share.

 

38



 

OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2008

 

The following table shows all equity awards for each Named Executive that were outstanding at the end of 2008.  All performance-based awards (including stock options) are fully described in the Compensation Discussion and Analysis section of this proxy statement.

 

Outstanding Equity Awards at 2008 Fiscal Year End

 

 

 

Option Awards

Stock Awards

Name

Year
of
Award

Number of
Securities
Underlying
Unexercised
Options

(#)
Unexercisable
(1)

Option
Exercise
Price


Option
Expiration
Date


Number
of
Shares
or Units
of Stock
that have
Not
Vested
(#)

(2)

Market
Value of
Shares or
Units of
Stock that
have Not
Vested
(3)

Equity Incentive
Plan Awards:
Number of
Unearned Shares,
Units or Other
Rights that have
Not Vested
(#)
(4) (5) (6)

Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units or
Other Rights that
have Not Vested
 (3)

William A. Cooper

2005

 

 

 

300,000

 

 

$

4,098,000

 

 

2006

 

 

 

797

 

 

$

10,887

 

 

2008

800,000

$12.85

8/1/2018

 

 

 

 

 

 

 

 

2008

 

 

 

450,000

 

 

$

6,147,000

 

Lynn A. Nagorske

2006

 

 

 

5,600

 

 

$

76,496

 

 

2008

  67,035

$15.75

1/22/2018

 

 

 

 

 

 

 

Thomas F. Jasper

2004

  2,000

 

$  27,320

 

 

 

 

 

 

 

2005

  2,000

 

$  27,320

 

 

 

 

 

 

 

2006

  6,000

 

$  81,960

 

 

 

 

 

 

 

2007

10,000

 

$136,600

 

 

 

 

 

 

 

2007

 

 

 

10,000

 

 

136,600

 

 

2008

141,000

$15.75

1/22/2018

 

 

 

 

 

 

 

Neil W. Brown

2006

 

 

 

55,000

 

 

751,300

 

 

2008

282,000

$15.75

1/22/2018

 

 

 

 

 

 

 

Candace H. Lex

2005

10,000

 

$136,600

 

 

 

 

 

 

 

2006

 

 

 

22,500

 

 

307,350

 

 

2008

  38,000

$15.75

1/22/2018

 

 

 

 

 

 

 

Gregory J. Pulles

2006

 

 

 

50,000

 

 

683,000

 

 

2008

158,000

$15.75

1/22/2018

 

 

 

 

 

 

 

 

2008

 

 

 

26,000

 

 

355,160

 


(1)    Except for Mr. Nagorske, the stock options vest in two installments: 50% on January 1, 2011 and the remaining 50% on January 1, 2012.  Upon Mr. Nagorske’s retirement, he retained 67,035 option shares of which 38,306 will vest (and become exercisable) on January 1, 2011; and 28,729 will vest (and become exercisable) on January 1, 2012.  Ms. Lex did not retain any stock options following her termination of employment pursuant to the terms of her agreement.

(2)    Awards represent non-performance-based awards and vest as follows for Mr. Jasper:  Year 2004 (2,000 shares) — July 1, 2009; Year 2005 (2,000 shares) — July 1, 2010; Year 2006 (6,000 shares) — January 1, 2011; and Year 2007 (10,000 shares) — January 1, 2012.  All of Ms. Lex’s shares were forfeited in January 2009.

(3)    Market or payout value is determined using the closing stock price of $13.66 on December 31, 2008.

(4)    Mr. Cooper’s 2005 stock award (“Chairman’s Stock Award”) was pursuant to his service as non-executive Chairman of which 200,000 shares vested on January 20, 2009 as a result of TCF’s achievement of greater than 20% ROTE in 2006 and 2007; the remaining 100,000 shares were forfeited on January 20, 2009.  The 2006 stock award is the balance of shares awarded to all outside Directors when Mr. Cooper was not an employee of TCF.

(5)    Mr. Nagorske was originally granted 80,000 shares in 2006 of which 5,600 shares were earned.  The remaining 74,400 shares were forfeited upon his retirement.  Mr. Jasper earned 1,000 shares of the 2007 award.  Mr. Brown earned 3,850 shares of the 2006 award and Mr. Pulles earned 3,500 shares.  The remaining unearned shares for Messrs. Jasper, Brown, and Pulles were forfeited in January 2009.  Ms. Lex forfeited all of her awards upon termination of her employment, pursuant to the terms of her agreements.

(6)    Mr. Cooper’s performance-based award granted in 2008 vests in three installments: 150,000 shares on January 1, 2010; 150,000 shares on January 1, 2011; and 150,000 shares on January 1, 2012.  Mr. Pulles’ performance-based award granted in 2008 vests in two installments: 13,000 shares on January 1, 2011; and 13,000 shares on January 1, 2012.  In January 2009, the Committee removed the performance-based goals for these awards as discussed on page 29; however, these awards remain subject to the vesting requirements.

 

39



 

OPTION EXERCISES AND STOCK VESTED IN 2008

 

 

 

 

Option Awards

 

 

Stock Awards

Name

 

 

Number of Shares
Acquired on Exercise

 

 

Value Realized
on Exercise

 

 

Number of Shares
Acquired on Vesting