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NOTICE & PROXY STATEMENT

SCHEDULE 14A INFORMATION

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    ¨

Check the appropriate box:

x    Definitive Proxy Statement

¨    Definitive Additional Materials

¨    Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

NORTHERN TRUST 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):

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

OF NORTHERN TRUST CORPORATION

March 12, 2007

ROSE A. ELLIS

Corporate Secretary

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NORTHERN TRUST CORPORATION

50 South LaSalle Street

Chicago, Illinois 60603

March 12, 2007

PROXY STATEMENT

INTRODUCTION

Our 2007 annual meeting of stockholders will be held on Tuesday, April 17, 2007 at 10:30 a.m., Chicago time, at the office of Northern Trust Corporation (the “Corporation”) located on the northwest corner of LaSalle Street and Monroe Street in Chicago, Illinois. We invite you to attend the annual meeting and vote your shares directly.

You do not need to attend the annual meeting to vote your shares. Instead, you may vote your shares by telephone or through the Internet or you may complete, sign, date, and return the enclosed proxy card in the postage-paid envelope provided. Instructions for voting by telephone or through the Internet can be found on the enclosed proxy card.

The Corporation’s board of directors is soliciting your proxy to encourage your participation in the voting at the annual meeting. This proxy statement provides you with information about each proposal and other matters that you may find useful in voting your shares.

On March 12, 2007, we began mailing this proxy statement and the enclosed proxy card to all stockholders entitled to vote at the annual meeting. We have enclosed with this proxy statement our 2006 annual report to stockholders, which consists of the 2006 summary annual report and the 2006 financial annual report. These reports contain detailed information about the Corporation’s activities and financial performance in 2006.

VOTING

Who May Vote

Record holders of the Corporation’s common stock at the close of business on February 26, 2007 may vote at the annual meeting. On that date, the Corporation had 219,280,820 shares of common stock outstanding. The shares of common stock held in the Corporation’s treasury will not be voted.

You are entitled to one vote for each share of common stock that you owned of record at the close of business on February 26, 2007. The enclosed proxy card indicates the number of shares you are entitled to vote at the annual meeting.

Voting Your Proxy

Whether or not you plan to attend the annual meeting, we urge you to vote your proxy promptly.

If you are a “stockholder of record” (that is, you hold your shares of the Corporation’s common stock in your own name), you may vote your shares by proxy using any of the following methods:

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The telephone and Internet voting procedures set forth on the proxy card are designed to authenticate stockholders’ identities, to allow stockholders to provide their voting instructions, and to confirm that their instructions have been properly recorded. If you vote by telephone or through the Internet, you should not return your proxy card.

If you are a “beneficial owner,” also known as a “street name” holder (that is, you hold your shares of the Corporation’s common stock through a broker, bank, or other nominee), you will receive voting instructions (including instructions, if any, on how to vote by telephone or through the Internet) from the record holder that you must follow in order to have your shares voted at the annual meeting.

If you own shares of common stock as a participant in The Northern Trust Company Thrift-Incentive Plan (“TIP”), or shares in any other employee benefit plan of the Corporation, you will receive a voting instruction card that covers the shares credited to each of your plan accounts.

Whether you vote by mail, telephone or Internet, your shares will be voted in accordance with your instructions. If you sign, date, and return your proxy card without indicating how you want to vote your shares, the proxy holders will vote your shares in accordance with the following recommendations of the board of directors:

The proxy holders are authorized to vote as they shall determine in their sole discretion on any other business that may properly come before the annual meeting.

Revoking Your Proxy

You may revoke your proxy at any time before it is voted at the annual meeting by:

Voting in Person

You may come to the annual meeting and vote your shares in person by obtaining and submitting a ballot that will be provided at the meeting. However, if your shares are held by a broker, bank, or other nominee in street name, to be able to vote at the meeting you must obtain a proxy, executed in your favor, from the record holder of your shares, indicating that you were the beneficial owner of the shares on February 26, 2007, the record date for voting.

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Householding Information

We are delivering only one annual report and proxy statement to record stockholders who share the same address unless they have notified us that they wish to continue receiving multiple copies. This practice, known as “householding,” reduces duplicate mailings, saves printing and postage costs as well as natural resources and will not affect dividend check mailings. If you wish to receive a separate copy of the annual report or proxy statement, or if you wish to receive separate copies of future annual reports or proxy statements, please call 312-444-7030 or mail a request to the Corporation’s Corporate Secretary at the address indicated on the first page of this proxy statement. We will deliver the requested documents promptly upon your request.

If you and other stockholders of record with whom you share an address currently receive multiple copies of annual reports or proxy statements, or if you hold stock in the Corporation in more than one account and, in either case, you wish to receive only a single copy of the annual report or proxy statement, please contact the Corporation’s transfer agent (Wells Fargo Bank, N.A., Attn: Householding, P.O. Box 64854, St. Paul, MN 55164-0854; Telephone: 877-602-7615) with the names in which all accounts are registered and the name of the account for which you wish to receive mailings.

Quorum and Vote Required for Approval

A quorum of stockholders is necessary to hold a valid meeting. A quorum will exist if a majority of the outstanding shares is present in person or by proxy at the annual meeting. Abstentions and broker non-votes, if any, will be counted as present for purposes of establishing a quorum. A “broker non-vote” will occur when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that proposal and has not received instructions from the beneficial owner. Inspectors of election appointed for the annual meeting will tabulate all votes cast in person or by proxy at the annual meeting. In the event a quorum is not present at the annual meeting, we expect that the annual meeting will be adjourned or postponed to solicit additional proxies.

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The following table indicates the vote required for approval of each item to be presented to the stockholders at the annual meeting and the effect of “withhold” votes, abstentions, and broker non-votes.

Solicitation of Proxies

The Corporation will pay all costs of soliciting proxies. The Corporation has retained Georgeson Inc. to assist with the solicitation of proxies for a fee not to exceed $12,500, plus reimbursement of reasonable out-of-pocket expenses. In addition, we may also use our officers and employees, at no additional compensation, to solicit proxies either personally or by telephone, Internet, letter, or facsimile.

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ADMITTANCE TO THE ANNUAL MEETING

Stockholders as of the record date, or their duly appointed proxies, may attend our annual meeting on April 17, 2007, and each may be accompanied by one guest. Registration will begin at 9:30 a.m., and seating will begin at 10:00 a.m. If you attend, please note that you will need an admission ticket or proof of ownership of the Corporation’s common stock to enter the meeting. If you arrive at the meeting without an admission ticket, we will admit you only if we are able to verify that you are a stockholder of the Corporation. Also, you may be asked to present valid picture identification, such as a driver’s license or passport. For safety and security reasons, cameras and recording devices will not be permitted in the meeting.

For stockholders of record, an admission ticket is enclosed. Please bring the admission ticket with you to the meeting.

If your shares of common stock are held by a broker, bank or other nominee in street name, your admission ticket is the left side of your voting instruction form. If you do not bring your admission ticket, you will need proof of ownership to be admitted to the meeting. A recent brokerage statement or letter from a bank or broker is an example of proof of ownership.

ITEM 1—ELECTION OF DIRECTORS

Stockholders will be asked to elect 14 directors at this year’s annual meeting. Set forth below is detailed information with respect to the 14 nominees, 13 of whom are currently serving as directors of the Corporation and of its principal subsidiary, The Northern Trust Company (the “Bank”). Duane L. Burnham, a director of the Corporation since 1997, will not stand for re-election as a director at the annual meeting. Enrique J. Sosa, a new director nominee, will stand for election to Mr. Burnham’s vacated seat. Mr. Sosa was recommended for consideration as a candidate for director by Edward J. Mooney, a current director of the Corporation. In addition, the board of directors elected Nicholas D. Chabraja a director of the Corporation, effective January 1, 2007. In developing a list of potential director candidates, the Corporate Governance Committee worked with a third-party search firm. During discussions with the search firm, the Chief Executive Officer identified Mr. Chabraja as an individual deserving of consideration. The search firm reviewed prospective director candidates and presented a list of them that included Mr. Chabraja to the Corporate Governance Committee for its consideration. The board of directors approved the slate of 14 nominees, including Mr. Sosa and Mr. Chabraja, based on consideration of the factors specified in the Corporate Governance Guidelines and the recommendation of the Corporate Governance Committee.

Each of the 14 director nominees has consented to serve as a director if elected at this year’s annual meeting. Each nominee elected as a director will serve until the next annual meeting and until his or her successor has been elected and qualified. If any nominee is unable to serve as a director at the time of the annual meeting, your proxy may be voted for the election of another nominee proposed by the board or the board may reduce the number of directors to be elected at the annual meeting.

The enclosed proxy card provides instructions on how to vote for all nominees or to withhold authority to vote for all or one or more nominees. At the 2006 annual meeting, the stockholders approved an amendment to the Corporation’s Restated Certificate of Incorporation to eliminate cumulative voting to allow for the adoption of a majority vote standard in the election of directors. The board of directors then amended the Corporation’s by-laws to implement the majority voting policy.

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Under the majority voting policy, a nominee for director in an uncontested election (such as this year’s election where the only nominees are those recommended by the board of directors) must receive the affirmative vote of a majority of the votes present and voting at a meeting of stockholders. In contested elections, the affirmative vote of a plurality of the votes present and voting will be required to elect a director. The board of directors also added a provision to the Corporate Governance Guidelines that requires an incumbent director who fails to receive the affirmative vote of a majority of the votes present and voting in an uncontested election at a meeting of stockholders to submit his or her resignation, with such resignation to be considered by the members of the Corporate Governance Committee and the board other than such incumbent director. In such event, the board of directors will act to accept or reject the incumbent director’s resignation no later than 90 days following the date of the stockholders’ meeting.

The Board of Directors unanimously recommends that you vote FOR the election of each nominee.

INFORMATION ABOUT THE NOMINEES FOR DIRECTOR

The following information about the nominees for election to the board of directors of the Corporation at the 2007 annual meeting of stockholders is as of December 31, 2006, unless otherwise indicated.

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BOARD AND BOARD COMMITTEE INFORMATION

Audit Committee

Current Members: Directors Burnham (Chair), Bynoe, Jain, Mooney, and Rowe

Number of Meetings in 2006: Five

Oversight Activities:

The board of directors has determined that, in its opinion, all current members of the Corporation’s Audit Committee are “independent” directors as defined by The Nasdaq Stock Market, Inc. (“Nasdaq”), and that Messrs. Burnham, Mooney, and Rowe and Ms. Bynoe are “audit committee financial experts,” as defined by the Securities and Exchange Commission (“SEC”).

The board of directors of the Corporation has adopted a formal charter, most recently revised in February 2007, that governs the duties and responsibilities of the Audit Committee. The Audit Committee charter is available on the Corporation’s website at www.northerntrust.com and available in print to any stockholder who requests it in writing from the Corporation’s Corporate Secretary at the address indicated on the first page of this proxy statement.

Compensation and Benefits Committee

Current Members: Directors Crown (Chair), McCormack, Mooney, Smithburg, and Tribbett

Number of Meetings in 2006: Four

Oversight Activities:

The board of directors has determined that, in its opinion, all current members of the Corporation’s Compensation and Benefits Committee are “independent” directors as defined by Nasdaq.

The board of directors of the Corporation has adopted a formal charter, most recently revised in February 2007, that governs the duties and responsibilities of the Compensation and Benefits Committee. The Compensation and Benefits Committee charter is available on the Corporation’s website at www.northerntrust.com and available in print to any stockholder who requests it in writing from the Corporation’s Corporate Secretary at the address indicated on the first page of this proxy statement.

For information about the role of the Committee and management in the consideration and determination of executive and director compensation, please refer to the “Compensation Discussion and Analysis—Timing of Equity Compensation Awards”; “—Roles of the Committee and Management” presented elsewhere in this proxy statement.

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The Committee retained Hewitt Associates, Inc., a nationally recognized compensation and benefits consulting firm, to provide information regarding competitive market data (including information with respect to the Corporation’s peer group companies), relevant legal and regulatory requirements, and corporate best practices in the compensation and benefits area. Representatives of Hewitt attended all meetings of the Committee at which 2006 executive compensation decisions were made.

Corporate Governance Committee

Current Members: Directors Smithburg (Chair), Burnham, Kelly, and Smith

Number of Meetings in 2006: Five

Oversight Activities:

The board of directors has determined that, in its opinion, all current members of the Corporation’s Corporate Governance Committee are “independent” directors as defined by Nasdaq.

The board of directors of the Corporation has adopted a formal charter, most recently revised in November 2006, that governs the duties and responsibilities of the Corporate Governance Committee. The Corporate Governance Committee charter is available on the Corporation’s website at www.northerntrust.com and available in print to any stockholder who requests it in writing from the Corporation’s Corporate Secretary at the address indicated on the first page of this proxy statement.

Other Committees

The Corporation’s board of directors has three other standing committees. The Business Strategy Committee, whose members are Directors Kelly (Chair), Jain, Rowe, and Smith, reviews the policies, strategies, and performance of the various business units of the Corporation. The Business Risk Committee, whose members are Directors McCormack (Chair), Bynoe, Crown, Smith, and Tribbett, reviews the risks inherent in extending credit, managing assets and liabilities, and providing fiduciary services and other related matters. The Executive Committee, whose members are Directors Osborn (Chair), Burnham, Crown, Kelly, McCormack, and Smithburg, meets as required and may exercise the powers of the board in the intervals between meetings of the board, subject to limitations imposed by law. The board of directors of the Corporation has adopted a formal charter for each of these three standing committees governing its duties and responsibilities. Each charter is available on the Corporation’s website at www.northerntrust.com and available in print to any stockholder who requests it in writing from the Corporation’s Corporate Secretary at the address indicated on the first page of this proxy statement.

Meetings

The Corporation’s board of directors held six meetings during 2006. All persons who were directors during 2006 attended at least 75% of these meetings and meetings of committees on which they served. The Corporation has a Corporate Governance Guideline that states that all directors are expected to attend the annual meeting of the Corporation’s stockholders. All of the directors attended the 2006 annual meeting of stockholders.

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CORPORATE GOVERNANCE

Director Independence

The board of directors has determined that, in its opinion, each person who served as a director of the Corporation in 2006 (including Robert A. Helman, who retired from the Board of Directors on April 18, 2006) and each director nominee for 2007 (other than William A. Osborn, the Chairman and Chief Executive Officer of the Corporation and the Bank, and Frederick H. Waddell, the President and Chief Operating Officer of the Corporation and the Bank) are “independent” directors as defined under applicable Nasdaq rules. In making its determinations of independence, the board considered certain categorical standards of independence as set forth in stock exchange corporate governance rules and all relevant facts and circumstances to ascertain whether there was any relationship between a director or director nominee and the Corporation that, in the opinion of the board, would interfere with the exercise of independent judgment in carrying out the responsibilities of the director, or any material relationship with the Corporation (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Corporation). The board also considered any transactions, relationships, or arrangements between the Corporation and each director of the Corporation in 2006 (including Mr. Helman) or director nominee for 2007 (other than Mr. Osborn and Mr. Waddell) either (i) directly or (ii) indirectly through an immediate family member of the director or director nominee, or an entity in which the director or director nominee is employed or is a general partner or principal or in a similar position or in which the director or director nominee and all other “related persons” (as defined below under “—Related Person Transaction Policy”) has a 10% or greater beneficial ownership interest (all relationships under (i) and (ii), collectively, the “Relationships”). In 2006, these Relationships included:

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In each case, the Corporation’s directors and director nominees, other than Mr. Osborn and Mr. Waddell, could be determined to be independent under the categorical standards considered by the board, which are attached as Exhibit A to this proxy statement. A copy of the categorical standards is also available on the Corporation’s website at www.northerntrust.com.

Executive Sessions

The independent directors of the Corporation meet in executive sessions separate from management at least twice a year. The independent directors met in such executive sessions five times during 2006. The chairman of the Corporate Governance Committee or, in his or her absence, the chairman of the Audit, Compensation and Benefits, Business Risk, or Business Strategy Committees presides at the executive sessions of the independent directors.

Corporate Governance Guidelines

The Corporation has had Corporate Governance Guidelines in place since May 2000. These guidelines were most recently revised in November 2006. The Corporate Governance Committee is responsible for reviewing and reassessing, at least annually, the adequacy of the Corporate Governance Guidelines and recommending any changes to the board of directors for its approval. The Corporate Governance Guidelines embody many of the Corporation’s long-standing practices and incorporate new policies and procedures that strengthen its commitment to corporate governance best practices. A copy of the Corporate Governance Guidelines is available on the Corporation’s website at www.northerntrust.com and available in print to any stockholder who requests it in writing from the Corporation’s Corporate Secretary at the address indicated on the first page of this proxy statement.

Director Nominations and Qualifications

The Corporate Governance Committee is responsible for considering, evaluating, and recommending candidates for director. The Committee will consider persons nominated by stockholders in accordance with the nomination procedures specified in the Corporation’s by-laws or otherwise recommended by stockholders. The Corporation’s by-laws provide that stockholders may propose director nominations only if they give timely written notice, directed to the attention of the Corporation’s Corporate Secretary at the address indicated on the first page of this proxy statement, not less than 90 days and not more than 120 days prior to the anniversary date of the prior year’s annual meeting. The notice must contain the information required by the by-laws. Stockholders may recommend candidates for director by following the procedures for communicating with directors described below under “Communications with the Board and Independent Directors.” The Committee uses the same process for considering, evaluating, and recommending director candidates, regardless of whether a candidate is recommended by a stockholder, director, officer, third-party search firm, or any other person or group.

In its evaluation of director candidates, including persons recommended by stockholders, the Committee considers the factors specified in the Corporation’s Corporate Governance Guidelines, including the nature of the expertise and experience required for the performance of the duties of a director of a corporation engaged in the Corporation’s business and such matters as: relevant business and industry experience; professional background; age; current employment; community service and other board service. The Committee also considers the racial, ethnic, and gender diversity of the board in assessing individual candidates. The Committee seeks to identify, as candidates for director, persons

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with a reputation for and record of integrity and good business judgment who (i) have experience in positions with a high degree of responsibility and are leaders in the organizations with which they are affiliated, (ii) are free from conflicts of interest that could interfere with a director’s duties to the Corporation and its stockholders, and (iii) are willing and able to make the necessary commitment of time and attention required for effective board service. The Committee also takes into account a candidate’s level of financial literacy, and monitors the mix of skills and experience of the directors in order to assess whether the board has the necessary tools to perform its oversight function effectively. A full listing of the characteristics and qualifications of director candidates considered by the Committee is set forth in the Corporate Governance Guidelines on the Corporation’s website at www.northerntrust.com. Following its evaluation process, the Committee recommends its director nominees to the full board of directors, and the board makes the final determination of director nominees based on its consideration of the Committee’s recommendation and report.

Communications with the Board and Independent Directors

Stockholders and other interested persons may communicate any concerns they may have regarding the Corporation, including recommendations of candidates for director, to the board of directors or to any member of the board of directors by writing to them at the following address:

Northern Trust Corporation

Attention: [Board of Directors]/[Board Member]

c/o Corporate Secretary

Northern Trust Corporation

50 South LaSalle Street, M-9

Chicago, Illinois 60603

Communications directed to the independent directors should be sent to the attention of the Chairman of the Corporate Governance Committee, c/o the Corporate Secretary, at the address indicated above.

Any stockholder or other interested person who has a particular concern regarding accounting, internal accounting controls, or other audit matters that he or she wishes to bring to the attention of the Audit Committee of the board of directors may communicate those concerns to the Audit Committee or its Chairman, using the address indicated above.

A majority of the independent directors of the Corporation has approved procedures with respect to the receipt, review and processing of, and any response to, written communications sent by stockholders and other interested persons to the board of directors. Any written communication regarding accounting, internal accounting controls, or other matters are processed in accordance with procedures adopted by the Audit Committee.

Code of Business Conduct and Ethics

The board of directors of the Corporation has adopted a Code of Business Conduct and Ethics, most recently revised in November 2006, to:

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The Code satisfies applicable SEC and Nasdaq requirements and applies to all directors, officers (including the Corporation’s principal executive officer, principal financial officer, principal accounting officer and controller), and employees of the Corporation and its subsidiaries. A copy of the Code is available on the Corporation’s website at www.northerntrust.com. The Corporation intends to disclose any amendments to the Code, and all waivers from the Code for directors and executive officers, by posting such information on its website.

Related Person Transaction Policy

In February 2007, the Corporation, through its Audit Committee, adopted the “Northern Trust Corporation Policy and Procedures with Respect to Related Person Transactions” (the “RPT Policy”). The RPT Policy governs the review, approval, or ratification of transactions between the Corporation or its subsidiaries and any related persons. “Related persons” means the Corporation’s directors, nominees for director, executive officers, greater than five percent beneficial owners, members of their immediate family, and any firm, corporation, or other entity in which any of the foregoing persons is employed or is a general partner or principal or in a similar position or in which such person and all other related persons has a 10% or greater beneficial interest.

The RPT Policy provides that the Corporation may undertake certain related person transactions in the ordinary course of business, including the following transactions:

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Any other related person transaction involving amounts in excess of $120,000 must be approved or ratified by the Audit Committee or the Audit Committee Chair. In considering related person transactions, the Audit Committee or the Audit Committee Chair shall consider all relevant facts and circumstances and shall approve only those related person transactions that are in, or otherwise not inconsistent with, the best interests of the Corporation and its subsidiaries. In addition, the RPT Policy provides that (i) no immediate family member of an executive officer (other than a child, stepchild or parent of an executive officer, none of whom may be hired under the Corporation’s human resources policies) shall be hired by the Corporation and (ii) no immediate family member of a director shall be hired by the Corporation, in each case, unless the employment arrangement is reviewed and approved by the Compensation and Benefits Committee of the Corporation.

In 2006, directors, director nominees, and executive officers of the Corporation, as well as their immediate family members, and any firm, corporation, or other entity in which the director, director nominee, or executive officer is employed or is a general partner or principal or in a similar position or in which the director, director nominee, or executive officer and all other related persons has a 10% or greater beneficial ownership interest, were clients of, and engaged in the types of transactions identified in the bullet points above with, the Corporation and its subsidiaries. These transactions were undertaken in the ordinary course of business and on terms no less favorable to the Corporation and its subsidiaries as those prevailing at the time for comparable transactions with non-related persons. None of these transactions or any transactions in which the Corporation or its subsidiaries sold or purchased products and services were material to the Corporation or the other entity involved. Any extensions of credit to directors and executive officers of the Corporation were permitted under the provisions of the Sarbanes-Oxley Act of 2002.

Compensation and Benefits Committee Interlocks and Insider Participation

The Compensation and Benefits Committee of the board of directors consists of Directors Crown (Chair), McCormack, Mooney, Smithburg, and Tribbett. None of the members of the Compensation and Benefits Committee is or ever was an officer or employee of the Corporation or any of its subsidiaries. For information relating to any transactions between members of the Compensation and Benefits Committee and the Corporation, please refer to “—Related Person Transaction Policy” above.

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SECURITY OWNERSHIP OF THE BOARD AND MANAGEMENT

The following table shows the beneficial ownership of the Corporation’s common stock for each director and director nominee, each executive officer named in the Summary Compensation Table elsewhere in this proxy statement, and all directors and executive officers of the Corporation as a group, as of January 1, 2007, unless otherwise indicated.

(1) The information contained in this table was furnished to the Corporation by the individuals named in the table and reflects the SEC’s definition of beneficial ownership. Except as noted below, the nature of beneficial ownership for shares shown in this table is sole voting and/or investment power (including shares as to which spouses and minor children of the individuals covered by this table have such power).

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(2) All stock units shown in the table are vested, except for (i) 1,066 unvested stock units held by each non-employee director other than Mr. Chabraja who has 282 unvested stock units, (ii) the following unvested stock units held by the named executive officers: Ms. Barrat, 27,399 unvested stock units; Mr. Fradkin, 36,899 unvested stock units; Mr. Morrison, 51,039 unvested stock units; Mr. Osborn, 154,927 unvested stock units; Mr. Theriault, 49,039 unvested stock units; Mr. Toth, 36,826 unvested stock units; Mr. Waddell, 74,532 unvested stock units; and all directors and executive officers as a group, 560,120 unvested stock units, and (iii) all performance stock units granted to the Corporation’s executive officers in February 2006, as described in the “Compensation Discussion and Analysis—Equity Compensation—Performance Stock Units.” Stock units and performance stock units held by directors and executive officers do not have voting rights. Stock units held by the non-employee directors include stock units representing deferred cash compensation which, when paid, will be paid out in cash based upon the then current value of the common stock. See “Director Compensation—Deferral of Compensation” for additional information.

(3) Robert C. McCormack, as co-trustee with the Bank, Harold B. Smith and one other individual, share voting and investment power for 4,420,263 shares or 2.02% of the outstanding common stock. As co-trustee with the Bank, Mr. McCormack shares voting and investment power for 2,201,008 or 1.01% of the outstanding common stock. With respect to 112,296 shares or .05% of the outstanding common stock, he serves as co-trustee with the Bank and has sole voting and investment power. In addition, Mr. McCormack has sole voting and investment power as to 125,324 shares or .06% of the outstanding common stock that are held in two trusts.

(4) The number of shares shown includes shares issuable pursuant to stock options exercisable within 60 days after January 1, 2007, as follows: Ms. Barrat, 248,447 shares; Mr. Fradkin, 242,222 shares; Mr. Morrison, 372,486 shares; Mr. Osborn, 1,647,235 shares; Mr. Theriault, 340,845 shares; Mr. Toth, 276,841 shares; Mr. Waddell, 377,699 shares; and all directors and executive officers as a group, 4,389,744 shares.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the Corporation’s directors and executive officers, and beneficial owners of more than 10% of the Corporation’s stock, if any, to file with the SEC initial reports of ownership and reports of changes in ownership of any securities of the Corporation. Copies of these reports must also be provided to the Corporation.

To the Corporation’s knowledge, all the Corporation’s directors, executive officers, and beneficial owners of more than 10% of the Corporation’s stock made on a timely basis all filings required during 2006, except that Robert C. McCormack, a director of the Corporation, filed a late Form 4 to report a sale of shares. In making these disclosures, the Corporation relied on copies of the reports provided to the Corporation and written representations from reporting persons that no other reports were required.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table includes information concerning common stock ownership of stockholders who were the beneficial owners of more than 5% of the outstanding shares of the Corporation’s common stock as of January 1, 2007, unless otherwise indicated.

(1) The information contained in this table was furnished to the Corporation by the persons named in the table and reflects the SEC’s definition of beneficial ownership. The nature of beneficial ownership of the holdings shown in this table is set forth in notes 2 and 3 below.

(2) Harold B. Smith serves as co-trustee and shares voting and investment power with various family members and the Bank with respect to 8,468,432 shares or 3.87% of the outstanding common stock. As co-trustee with the Bank, Robert C. McCormack and one other individual, he shares voting and investment power for 4,420,263 shares or 2.02% of the outstanding common stock. With respect to 93,054 shares or .04% of the outstanding common stock, he serves as co-trustee and shares voting and investment power with other family members. Mr. Smith also has sole voting and investment power over 5,304 shares or .01% of the outstanding common stock held in a trust.

(3) The Bank, as Trustee of TIP, holds 11,841,492 shares or 5.41% of the outstanding common stock. Of these shares, 3,514,101 shares or 1.61% of the outstanding common stock are held in the Northern Trust Stock Fund of TIP, and 8,327,391 shares or 3.81% of the outstanding common stock are held in the Former ESOP Fund of TIP. TIP participants have the right to direct the Bank, as Trustee, to vote the shares held in their accounts, subject to Part 4 of Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Bank, as Trustee, will vote allocated shares for which no direction is received and unallocated shares, if any (together, “Undirected Shares”) in the same proportion as the shares for which direction is received, except as otherwise provided in accordance with ERISA. Under TIP, participants are “named fiduciaries” to the extent of their authority to direct the voting of shares held in their accounts and their proportionate share of Undirected Shares. With respect to investment power in the context of a tender offer, TIP participants have the right to direct the Bank, as Trustee, whether to tender shares held in their accounts, except to the extent such directions are contrary to ERISA. The Bank, as Trustee, shall not tender Undirected Shares, except as otherwise provided in accordance with ERISA.

In addition, as of January 1, 2007, the Bank and its affiliates individually acted as sole or co-fiduciary with respect to trusts and other fiduciary accounts which own, hold or control through intermediaries in the aggregate 26,619,259 shares or 12.17% of the outstanding common stock over which the Bank and its affiliates have, directly or indirectly, sole or shared voting power and/or sole or shared investment power. No single trust or other fiduciary account holds a beneficial ownership

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interest in excess of 5%. Of these shares, the Bank and its affiliates have sole voting power with respect to 8,914,047 shares or 4.08% of the outstanding common stock, and they share voting power with respect to 15,729,074 shares or 7.19% of the outstanding common stock. They have sole investment power with respect to 4,215,161 shares or 1.93% of the outstanding common stock, and they share investment power with respect to 15,764,695 shares or 7.21% of the outstanding common stock.

As of January 1, 2007, Northern Trust directors and employees as a group beneficially owned over 13% of the Corporation’s common stock. In addition, the Corporation estimates that at least 3% of the Corporation’s common stock was beneficially owned by Northern Trust retirees as of January 1, 2007.

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EXECUTIVE COMPENSATION

COMPENSATION AND BENEFITS COMMITTEE REPORT

The Compensation and Benefits Committee of the board of directors hereby furnishes the following report to the stockholders of the Corporation in accordance with rules adopted by the Securities and Exchange Commission.

The Compensation and Benefits Committee states that it has reviewed and discussed with management the Corporation’s Compensation Discussion and Analysis contained in this proxy statement.

Based upon this review and discussion, the Compensation and Benefits Committee recommended to the board of directors that the Compensation Discussion and Analysis be included in this proxy statement.

This report is submitted on behalf of the members of the Compensation and Benefits Committee:

Susan Crown, Chair

Robert C. McCormack

Edward J. Mooney

William D. Smithburg

Charles A. Tribbett III

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COMPENSATION DISCUSSION AND ANALYSIS

Executive Compensation Philosophy

The Corporation’s executive compensation program is designed to attract, motivate, and retain individuals who will contribute to the Corporation’s success and the creation of stockholder value.

The Corporation emphasizes “total compensation” in establishing its executive compensation levels, with each element of total compensation serving a specific purpose. Total compensation consists principally of cash compensation (base salaries and annual cash incentives), equity compensation (stock options, restricted stock units, and performance stock units), and retirement benefits.

Cash compensation rewards short-term performance, typically the achievement of annual financial and non-financial goals of the Corporation. The Corporation uses equity compensation to help ensure that a significant portion of the executive’s total compensation is tied to the longer-term performance of the Company’s common stock. In the case of cash compensation and equity compensation alike, the Corporation retains the flexibility to recognize and reward superior company, business unit, and individual performance by differentiating the awards made to individual executives. The retirement program provides post-employment financial security based on length of service by executives and other employees with the Corporation.

The Corporation has adopted the following criteria in the design of its executive compensation program:

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All of these companies are included in the Keefe, Bruyette & Woods 50 Index, a market-capitalization-weighted bank stock index used by the Corporation in the performance graph presented in the Corporation’s Financial Annual Report to Shareholders. The nature of the Corporation’s business presents challenges in identifying similar organizations for comparison purposes; however, the Corporation believes that the companies listed in the above peer group fairly represent its principal competition for executive talent and are an appropriate benchmark for comparing corporate performance.

The key design features of the Corporation’s executive compensation program described above have enabled the Corporation, over time, to achieve strong performance and to maintain executive leadership through identification, development, and promotion of talent from within its officer population, as evidenced by the fact that the named executive officers in this proxy statement have been employed by the Corporation for an average of 21 years and a minimum of 10 years. In turn, the Corporation’s historical success in retaining its executive leadership has influenced the nature and scope of the Corporation’s executive compensation program with respect to its use of stock options and performance stock units.

Elements of the Corporation’s Executive Compensation Program

The principal elements of the Corporation’s executive compensation program are cash compensation, equity compensation, and retirement benefits. The Corporation also provides a limited number of perquisites and other benefits as well as certain benefits in the event of a change in control and severance benefits. Each of these compensation elements is described below.

Cash Compensation

The Corporation pays two types of cash compensation to its named executive officers: base salaries and annual cash incentives.

Base Salaries. The Corporation believes that base salaries should provide a fixed level of annual income consistent with an executive officer’s position and responsibilities. Base salaries of the Corporation’s executive officers are targeted at approximately the median of salaries for similar positions in the peer group companies used for comparison purposes, adjusted in the judgment of the Compensation and Benefits Committee (as used in this section, the “Committee”) to reflect an executive’s experience and qualifications. Annual base salary adjustments are designed principally to recognize an executive officer’s performance and contributions over the prior year. Adjustments to base salary also take into account relevant peer group company information, significant changes in assignment or scope of responsibility, individual performance relative to established goals and expectations for the position, and the Corporation’s general salary administration policy for the particular year. Annual base salary adjustments are generally effective April 1. Salary adjustments, if any, for promoted executives typically take effect upon the executives’ promotion date and assumption of new responsibilities.

For 2006, the base salary for Mr. Osborn, Chairman and Chief Executive Officer (“CEO”) of the Corporation, was increased by $50,000. This increase in Mr. Osborn’s base salary, his first since 2004, was consistent with the Corporation’s 2006 salary policy, reflects the Committee’s evaluation of Mr. Osborn’s performance in 2006, and positions Mr. Osborn’s base salary at approximately the median level of CEOs in the Corporation’s peer group companies. The base salary for Mr. Waddell

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was increased by $150,000 in recognition of his promotion from Corporate and Institutional Services Business Unit Head to President and Chief Operating Officer (“COO”) of the Corporation. The base salaries of the other named executive officers—Messrs. Fradkin, Morrison, Theriault, and Toth—were each increased by $25,000 in accordance with the Corporation’s 2006 salary policy to reflect their individual performance and to align their base salaries at approximately the median level of their counterparts at the Corporation’s peer group companies. These base salary increases were effective April 1, 2006. In January 2006, the base salary of Ms. Barrat was increased by $150,000 in recognition of her promotion from President of Northern Trust California to President of Personal Financial Services.

At its February 2007 meeting, the Committee approved the following new base salaries, effective April 1, 2007, for the named executive officers: Mr. Osborn: $1,100,000; Mr. Fradkin: $500,000; Mr. Waddell: $725,000; Mr. Morrison: $550,000; Mr. Theriault: $550,000; Ms. Barrat: $550,000; and Mr. Toth: $525,000.

Annual Cash Incentives. The Corporation provides annual cash incentives as performance based compensation to reward successful achievement of financial and operating objectives for the most recent fiscal year.

The Committee determines and approves annual cash incentives for the Corporation’s executive officers under the provisions of the stockholder-approved Management Performance Plan (the “MPP”). Awards under the MPP qualify as performance based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) because they are tied to the Corporation’s net income results for the prior year and may not exceed the following maximum award limitations as fixed by the MPP: (i) the award for the Chairman and CEO may not exceed 0.6% of consolidated net income (or approximately $4.0 million for 2006); (ii) the award for the President and COO may not exceed 0.4% of consolidated net income (or approximately $2.7 million for 2006); and (iii) the award for each of the other MPP participants, including all of the named executive officers, other than the Chairman and CEO and the President and COO, may not exceed 0.3% of consolidated net income (or approximately $2.0 million for 2006).

The Committee targeted 2006 annual cash incentives for each named executive officer as a percentage of base salary ranging from 0% to 300% based upon cash bonus information of its peer group companies as well as the officer’s position, responsibilities and performance, subject to the MPP award limitations described above.

As shown in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table, actual awards for 2006 were within the targeted award range and reflected the following factors:

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Annual cash incentive awards made to the named executive officers for 2006 are also shown in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table presented elsewhere in this proxy statement.

Named executive officers may elect to have all or any portion of an annual cash incentive award deferred under the Northern Trust Corporation Deferred Compensation Plan (“DCP”) for a fixed term of years, until separation from service, death, disability, or until the occurrence of some other distribution event consistent with the requirements of the Code. Upon election, amounts deferred may be invested in various funds, generally consistent with those provided to all employees who participate in TIP, which is a 401(k) plan.

Equity Compensation

The Corporation uses equity compensation to provide longer-term incentives for its named executive officers and other executives to enhance stockholder value. The use of equity compensation serves to align the interests of the named executive officers and other executives with those of the Corporation’s stockholders. The Corporation believes that using meaningful time periods for vesting and other features of the awards contributes to continuity and stability within the Corporation’s executive leadership.

The Corporation’s equity compensation is performance based in two important respects. First, the level of the equity compensation award takes account, as described below, of an executive’s performance, the Corporation’s performance, and the contributions made by the executive to the Corporation’s performance. Second, equity compensation in the form of stock options and performance stock units will not provide any financial benefit to an executive unless the stock price increases in the case of stock options and the performance goals are satisfied in the case of performance stock units.

Consistent with the Corporation’s objective of providing total compensation that is competitive for comparable positions at the Corporation’s peer group companies, the Corporation reviews and considers the size, type, and mix of equity awards granted to the named executive officers and other executives by its peer-group companies.

Equity compensation typically takes the form of stock options, restricted stock units (which convert into shares of common stock on a one-for-one basis, subject to satisfaction of a vesting period), and performance stock units (which also convert into shares of common stock on a one-for-one basis, subject to the achievement of designated performance goals). The Corporation’s 2002 Stock Plan, which was approved by stockholders at the 2002 annual meeting, also provides for the issuance of other types of equity-based awards, including stock awards, stock appreciation rights, and performance shares.

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The Corporation first determines the total dollar amount of equity compensation that it seeks to provide in a given year to each named executive officer and then allocates that dollar amount among stock options, restricted stock units, and performance stock units based on the fair market value of the awards at the date of grant. The fair market value of the stock options is determined using a methodology substantially similar to the Black-Scholes methodology. The values of restricted stock unit and performance stock unit awards are discounted from their values as calculated under the Statement of Financial Accounting Standard No. 123(R) (“SFAS No. 123(R)”) to reflect risks of forfeiture (non-vesting) of these awards due to the potential of not satisfying the required service or performance requirements under these awards. The valuation of the Corporation’s equity compensation is consistent with the valuation of the equity awards of the Corporation’s peer group companies considered by the Corporation in determining the total dollar amount of equity compensation to be provided to the named executive officers.

For 2006, the Corporation targeted the total dollar amount of equity compensation, valued as described above, at approximately seven-to-eight times base salary for the Chairman and CEO, approximately four-to-five times base salary for the President and COO, and approximately three-to-four times base salary for the other named executive officers.

Based on its 2006 equity compensation targets, the Corporation then fixed the actual total dollar amount of equity compensation for each named executive officer in 2006 in connection with a corporate-wide review and evaluation of the Corporation’s executive talent that considered the following factors:

There is no formula that assigns specific weight to these factors, and the relative importance of these factors may vary year to year. In most years, as was the case in 2006, the CEO’s recommendation is a very significant factor in the setting of equity compensation for named executive officers other than the CEO.

In 2006, the Corporation allocated its equity compensation in the following manner:

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This allocation reflects a greater use in 2006, as compared to 2005, of performance based awards, particularly performance stock units, and less reliance on restricted stock units where vesting is tied exclusively to continued employment. The Corporation made these changes principally for the following reasons: (i) SFAS No. 123(R) negatively affected the accounting treatment for stock options; (ii) the current allocation of awards is more in line with the practices of the Corporation’s peer-group companies; (iii) the use of stock units provides greater tax deferral opportunities for the named executive officers and results in less dilution for the Corporation and its stockholders; (iv) performance stock units permit the Corporation to reward performance based upon the achievement of objective performance criteria; and (v) the different types of equity awards allow the Corporation to distinguish between incentives based on continued employment and incentives based on performance. For similar reasons, the Corporation, acting through the Committee at its February 2007 meeting, allocated its 2007 equity compensation almost equally between performance stock units and stock options, and chose not to grant any restricted stock units to the named executive officers.

Restricted Stock Units. Each restricted stock unit entitles an executive to receive one share of stock in the year in which the award vests. Restricted stock units vest over a specified vesting period determined by the Committee. The 2006 restricted stock units vest at a rate equal to 50% on the third anniversary of the date of grant and 50% on the fourth anniversary of the date of grant.

Dividend equivalents on the restricted stock units are paid on a current basis prior to vesting and distribution. If the executive dies, becomes disabled, or retires during the vesting period, or the executive’s employment is terminated during the vesting period under certain circumstances entitling the executive to severance benefits, the executive will be entitled to receive a distribution of a prorated number of restricted stock units. In addition, if an executive is a Management Committee member on the date of grant, is age 55 or older on the date of termination of employment, and does not compete with the Corporation during the vesting period, a prorated number of restricted stock units is eligible for distribution at the completion of the vesting period. In other instances where the executive leaves the Corporation during the vesting period, the restricted stock units are forfeited. Upon a change in control of the Corporation, all restricted stock units become fully vested.

Restricted stock unit awards made in 2006 to the named executive officers are shown in the Grants of Plan-Based Awards table presented elsewhere in this proxy statement.

Performance Stock Units. Performance stock units entitle an executive to receive shares of common stock, on a one-for-one basis, in the year in which the award vests. The 2006 performance stock units vest subject to the satisfaction of a performance goal based on the Corporation’s average annual earnings per share growth over the three-year period ending December 31, 2008, as more specifically described in the footnote to the “Stock Awards” column of the Summary Compensation Table presented elsewhere in this proxy statement. The 2006 performance stock units otherwise mirror the 2006 restricted stock units in terms of the payment of dividend equivalents, payment upon death, disability, retirement, termination of employment, and a change in control.

Performance stock unit awards made in 2006 to the named executive officers are shown in the Grants of Plan-Based Awards table presented elsewhere in this proxy statement.

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At its February 2007 meeting, the Committee granted the following number of performance stock units, with vesting subject to satisfaction of a performance goal based on the Corporation’s average annual earnings per share growth over the three-year period ending December 31, 2009, to the named executive officers: Mr. Osborn: 86,806; Mr. Fradkin: 17,888; Mr. Waddell: 28,936; Mr. Morrison: 17,888; Mr. Theriault: 17,888; Ms. Barrat: 17,888; and Mr. Toth: 16,836.

Stock Options. Stock options are granted with an exercise price equal to the market price of the common stock on the date of grant and expire 10 years after the date of the grant. This approach is designed to motivate the executive to contribute to the creation of stockholder value over the long term. The Corporation currently grants only non-qualified stock options because it believes that the tax benefits to the Corporation of non-qualified stock options outweigh the potential tax benefits to the named executive officers of incentive stock options.

Stock options vest over a specified vesting period determined by the Committee. The 2006 stock options vest in equal installments over a four-year vesting period ending in 2010. If the executive dies or becomes disabled, the stock options (whether vested or unvested) become vested and may be exercised until the earlier of five years following death or disability or the expiration date of the option. If the executive retires, the stock options continue to vest in accordance with their terms and, once vested, may be exercised until the earlier of five years following retirement or the expiration date of the option. If the executive’s employment is terminated under certain circumstances entitling the executive to severance benefits, the executive’s stock options (whether vested or unvested) may be exercised until the earlier of 180 days following termination of employment or the expiration date of the option. If the executive is a member of the Management Committee on the date of grant, is age 55 or older with a minimum of 10 years of employment on the date of termination of employment, and is not otherwise retirement-eligible pursuant to the Corporation’s retirement policy, the stock options continue to vest and, once vested, may be exercised until the earlier of five years following termination of employment or the expiration date of the option. In other instances, vested stock options expire on the earlier of three months following termination of employment or the expiration date of the option, and unvested stock options expire on termination of employment. Upon a change in control of the Corporation, all stock options become vested and exercisable.

Stock options made in 2006 to the named executive officers are shown in the Grant of Plan-Based Awards table presented elsewhere in this proxy statement.

At its February 2007 meeting, the Committee granted the following number of stock options, with a four-year vesting period ending in 2011, to the named executive officers: Mr. Osborn: 195,313; Mr. Fradkin: 40,247; Mr. Waddell: 65,105; Mr. Morrison: 40,247; Mr. Theriault: 40,247; Ms. Barrat: 40,427; and Mr. Toth: 37,879.

Timing of Equity Compensation Awards

The Committee currently meets in February of each year to consider and act with respect to stock option and stock unit awards (including both restricted stock units and performance stock units) for the Corporation’s executive officers for the then current fiscal year. This is the same meeting at which annual salary adjustments are made, and cash incentive awards under the MPP are determined based on performance during the recently completed year. The Committee’s February meeting follows the Corporation’s public release of its earnings results for the recently completed fiscal year.

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The Committee, on occasion, may grant additional equity awards at other times during the year to newly hired or newly promoted executive officers or, in isolated cases, for special retention purposes. For each grant approved by the Committee, the date of grant is the date on which the Committee acts to approve the award. The Committee acts in strict compliance with the requirements of the Northern Trust Corporation 2002 Stock Plan, including the requirement that stock options may not be granted at less than 100% of the fair market value of the Corporation’s common stock on the date of grant. The Corporation does not time the grants of its equity compensation awards for the purpose of affecting the value of such executive compensation, nor does it time grants to precede or follow disclosures of material nonpublic information.

The Committee has authorized the CEO, the President and COO, and the Executive Vice President, Human Resources and Administration to grant non-qualified stock options and restricted stock units to certain employees (but not including any named executive officer or other executive officers subject to Section 16 under the Securities Exchange Act of 1934), subject to certain conditions and limitations. These grants are effective as of the date of the next regularly scheduled meeting of the Committee following such grant, with the exercise price of the stock options equal to 100% of the fair market value on the effective date. This delegated authority is designed for limited use in connection with new hires or newly promoted executive officers, or for special retention purposes, and in 2006, was exercised with respect to only two individual awards.

Retirement Benefits

The named executive officers participate in The Northern Trust Company Pension Plan (the “Pension Plan”) and TIP on the same terms as all other United States-based eligible employees. The named executive officers also participate in the Northern Trust Corporation Supplemental Pension Plan (“Supplemental Pension Plan”) and the Northern Trust Corporation Supplemental Thrift-Incentive Plan (“Supplemental TIP”), which provide eligible employees, including the named executive officers, with the portion of their retirement benefits that cannot be paid under the Pension Plan and TIP due to applicable Code and Pension Plan limits.

The purpose of the Corporation’s retirement program is to provide financial security in retirement in two ways: (i) an employer-provided basic benefit under the Pension Plan and Supplemental Pension Plan and (ii) employee contributions, together with matching and profit sharing contributions from the employer, under TIP and Supplemental TIP. The design of the Corporation’s retirement program for employees, including the named executive officers, reflects the following considerations:

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Pension Plan and Supplemental Pension Plan. The Pension Plan and the Supplemental Pension Plan together provide named executive officers with an annual benefit paid at age 65 equal to the executive’s average compensation for his or her highest 60 consecutive calendar months prior to retirement, multiplied by 1.8% and then further multiplied by years of credited service up to a maximum of 35 years. This amount is then reduced by an amount based on the executive’s Social Security covered compensation and credited service. The portion of this benefit not in excess of various limits imposed by the Code and Pension Plan is paid under the Pension Plan, and the portion of the executive’s benefit in excess of these amounts, if any, is paid under the Supplemental Pension Plan. This benefit is reduced if the executive retires and begins receiving benefit payments before age 62 (or age 60 under certain circumstances). All named executive officers have completed five years of vesting service and thus are fully vested in their pension benefits.

The aggregate change during 2006 in the actuarial present value of each named executive officer’s accumulated retirement benefit under the Pension Plan and Supplemental Pension Plan appears in the column “Change in Pension Value and Nonqualified Deferred Compensation Earnings” in the Summary Compensation Table presented elsewhere in this proxy statement. The actuarial present value of each named executive officer’s accumulated retirement benefit under the Pension Plan and Supplemental Pension Plan and the number of years of his or her credited service appear in the Pension Benefits table presented elsewhere in this proxy statement.

TIP and Supplemental TIP. Under TIP, named executive officers can defer a portion of their base salary and receive employer matching contributions equal to 100% of the first 3% of deferred salary and 50% of the next 3% of deferred salary, for a maximum matching contribution of 4.5% of salary. In addition, for each year in which the Corporation attains an annual earnings goal, the executives are entitled to a profit sharing contribution equal to 1% of base salary, up to the annual Code compensation limit.

Under Supplemental TIP, named executive officers can contribute a portion of their base salary that exceeds the annual Code compensation limit ($220,000 in 2006). The Corporation makes a matching contribution under Supplemental TIP using the formula in TIP. The Corporation makes no profit sharing contribution to Supplemental TIP unless other applicable Code limits would prevent the full profit sharing contribution from being made to TIP. The named executive officers are fully vested in their retirement benefits under TIP and Supplemental TIP.

The employer’s matching and profit sharing contributions made under TIP and Supplemental TIP on behalf of each named executive officer are included in the “All Other Compensation” column of the Summary Compensation Table presented elsewhere in this proxy statement.

Perquisites and Other Benefits

Perquisites are not a principal element of the Corporation’s executive compensation, and unlike the Corporation’s cash and equity compensation, perquisites are not analyzed and evaluated under the “performance based,” “stockholder-aligned,” and “competitive” criteria which are central to the Corporation’s executive compensation philosophy. The Corporation’s perquisites are limited in number and modest in dollar value in comparison to its principal elements of compensation. They are intended to assist executive officers in the performance of their duties on behalf of the Corporation, to help them manage some forms of compensation to realize their intended value, or otherwise to provide benefits that have a combined personal and business purpose.

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The Committee annually reviews the types and costs of perquisites provided by the Corporation to its executive officers to be sure that the perquisites are in line with the philosophy described above. The Corporation provided the following perquisites to its executive officers in 2006:

The Corporation reimburses the named executive officers for the payment of personal income taxes in connection with the use of company automobiles for business-related purposes that is considered a taxable benefit to the named executive officer. The named executive officers also participate in the employer’s medical, retiree medical, dental and life insurance programs on the same terms as other employees.

Disclosure of the dollar value of each perquisite provided to the named executive officers in 2006 is set forth in the table entitled “Perquisites” under the Summary Compensation Table presented elsewhere in this proxy statement.

Change in Control Benefits

The Corporation believes it is in the interests of the Corporation and its stockholders in the event of a change in control to provide employment security arrangements for certain key executive officers of the Corporation. As a part of its executive compensation program, therefore, the Corporation entered into employment security agreements with each of its named executive officers and certain other executives. On February 20, 2007, the Corporation and Mr. Osborn, Chairman and CEO of the Corporation terminated, at his request, his employment security agreement. Accordingly, the following description applies to the employment security agreements in place with each named executive officer other than Mr. Osborn.

The purpose of these agreements is to provide an executive with sufficient security so that the executive is not distracted from job duties, financially threatened by potential job loss, or motivated to act contrary to the best interests of the Corporation and its stockholders prior to, during, or after a change in control. The Corporation believes the employment security agreements are critical to its ability to attract and retain key executives for the following reasons:

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Payments under the employment security agreements are subject to a “double-trigger”: first, a change in control must occur and second, within two years following the change in control, the executive must voluntarily terminate employment for “good reason” (e.g., a reduction in job duties or responsibility, reduced or adverse changes in employment compensation or benefit programs, requirements for travel or relocation) or the executive’s employment must be terminated involuntarily without “good cause” (e.g., dishonesty, fraud, breach of trust, poor performance). The employment security agreements also protect an executive if the executive’s employment terminates for “good reason” or without “good cause,” as described above, during the period pending a change in control, defined generally as the period after approval by the stockholders and prior to the effective time of certain change in control events. Change in control is defined in the employment security agreements to include the acquisition of more than 20% of the Corporation’s common stock, certain mergers, consolidation and asset transfers, or the election, without the consent of two-thirds of the incumbent board of directors, of the lesser of three directors or a majority of the directors then in office.

Change in control benefits under the employment security agreements generally include a lump sum cash payment equivalent to three years’ base salary and bonus and a prorated bonus for the year of termination, continuation of medical, dental, life insurance, and other similar benefits for three years, and full vesting of stock options, restricted stock units, and performance stock units. Terminated executives also receive a five-year post-termination exercise period for all outstanding non-qualified stock options and incentive stock options granted on or after September 25, 2001, and a three-year age and service credit, if necessary, to qualify for early or normal retirement, as applicable, under the Corporation’s Supplemental Pension Plan and to qualify for participation in the Corporation’s retiree medical program. The employment security agreements also provide that the Corporation will reimburse the executives for any excise tax imposed on payments under the agreements as well as taxes imposed on such reimbursement amounts.

Disclosure of potential change in control benefits payable to each named executive offer, assuming a change in control of the Corporation and termination of employment on December 29, 2006, is set forth below under “Potential Payments Upon Termination of Employment or a Change in Control of the Corporation.”

Severance Benefits

The Corporation maintains a severance plan for eligible salaried employees, including the named executive officers. The purpose of the severance plan is to provide reasonable severance benefits to employees who are involuntarily terminated without cause due to a reduction in force, job elimination or similar reasons specified in the severance plan. The Corporation believes that the availability of severance benefits allows the Corporation to compete with its peer group companies in attracting and retaining key executives.

The named executive officers receive severance benefits that include a lump sum payment of two weeks of base salary for each year of completed service up to but less than 25 years, or 52 weeks of base salary for 25 years or more of completed service to the Corporation. The named executive officers also would be entitled to a COBRA subsidy based on their length of service to help cover the costs of continuation coverage under the employer’s medical and dental plans, full vesting under TIP and Supplemental TIP, one additional year of vesting service under the Pension Plan and the Supplemental Pension Plan, enhanced early retirement eligibility under the Pension Plan for employees who have reached age 54 with 14 years of credited service, and outplacement assistance.

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The above-described severance benefits are contingent upon execution of a release, waiver and settlement agreement with the Corporation. Severance payments will be reduced by any severance payments made under employment security agreements or any other benefit plan, program or individual contract.

Other Factors Relevant to the Determination of Executive Compensation

Stock Ownership Target Guidelines

Stock ownership and stock retention levels are among the factors in the setting of executive compensation for the named executive officers and other executives. Effective January 1, 2006, the Corporation implemented stock ownership target guidelines for the Corporation’s executive officers and directors. The guidelines identify a target number of shares of common stock that the executive officers and directors are expected to accumulate and hold within five years. The specific stock ownership target guidelines are based on the lesser of (i) a multiple of base salary ranging from two-to-five times and (ii) a fixed number of shares, depending upon the executive officer’s position and responsibilities.

The target guideline applicable to the CEO is the lesser of shares equal to five times base salary or 125,000 shares. For the other named executive officers, the target guideline ranges from the lesser of shares equal to three-to-four times base salary or 37,500 to 75,000 shares. For directors, the target guideline is the lesser of shares equal to five times the annual retainer or 10,000 shares, of which 1,000 shares are expected to be owned within the first year of joining the board and the remainder are expected to be owned within five years of joining the board. In all cases, the calculation of shares of common stock includes shares purchased on the open market, shares owned jointly with or separately by spouses and children, shares held through TIP and Supplemental TIP, shares obtained through stock option exercises (but not including unexercised stock options) and stock award distributions, vested stock units and 50% of unvested restricted stock units and stock awards. In addition, there is an expectation that the executive officers and directors will retain 75% of the net shares received from stock awards and stock options, after deductions for taxes and option exercise costs, beginning with grants and distributions on or after January 1, 2007, regardless of whether the stock ownership target guideline has been met.

Each named executive officer and director currently meets or exceeds the stock ownership target guidelines.

Roles of the Committee and Management

At its February meeting each year, the Committee reviews the total compensation of each named executive officer of the Corporation. The Committee has adopted guidelines used to set base salaries, determine annual cash incentives for the year just concluded, and approve equity incentive awards for the current year. The guidelines are used by the Committee and the CEO to align the components of individual compensation with respect to the named executive officer’s individual responsibilities, contributions, and the overall success of the Corporation’s business. Total compensation is determined within the context of providing an appropriate mix of base salary, cash and equity incentives, and retirement benefits. During the course of the year, the Committee also reviews the Corporation’s retirement benefit program and other forms of benefits and compensation, including perquisites, that may be paid to the named executive officers.

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The Committee makes executive compensation decisions after careful review and analysis of information deemed relevant. In doing so, it considers all components of the Corporation’s executive compensation program in total rather than looking at any one component in isolation. In its review, the Committee recognizes and considers the impact that certain compensation actions may have on the potential values of other pay and benefit programs. In making compensation decisions, the Committee reviews summary sheets (sometimes referred to as tally sheets) showing the dollar value of the following components of compensation and benefits for each named executive officer during their recent history with the Corporation, including:

The Committee considers the input of the Corporation’s management, including, in particular, the Human Resources Department. The Human Resources Department collects relevant historical and peer group company compensation and works with the CEO and the Committee in setting preliminary compensation levels for all named executive officers other than the CEO. The Committee also receives competitive market data and advice from Hewitt Associates, Inc., a nationally recognized compensation and benefits consulting firm.

Deductibility of Executive Compensation

The Corporation views the tax deductibility of executive compensation under Section 162(m) of the Code as an important factor to be considered in determining the forms and amounts of executive compensation. The Corporation, through the Committee, reviews each material element of compensation on a continuing basis and takes steps to assure deductibility if that can be accomplished without sacrificing flexibility and other important elements of the overall executive compensation program.

Base salary and the amounts set forth in the “All Other Compensation” column of the Summary Compensation Table do not by their nature qualify as “performance based compensation” under Section 162(m). The Corporation has taken appropriate steps, including obtaining stockholder approval, to qualify the MPP and the 2002 Stock Plan as “performance based compensation” so that cash awards under the MPP and awards of stock options and performance stock units under the 2002 Stock Plan are or will be fully deductible. The Corporation also provides in its restricted stock unit

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agreements under the 2002 Stock Plan that the payment of the stock units is mandatorily deferred to the first year in which it would result in deductible compensation. As a result, in 2006, substantially all compensation paid to the CEO, and all compensation paid to the other named executive officers, was fully deductible.

SUMMARY COMPENSATION TABLE

The following table sets forth compensation information for the Corporation’s CEO, chief financial officer, and the five other most highly compensated executive officers for the year ended December 31, 2006.

(1) Salary. Salary adjustments for each named executive officer during 2006 were effective April 1, 2006, except that Ms. Barrat’s salary adjustment became effective on January 1, 2006.

(2) Stock Awards. This column shows the dollar amount recognized by the Corporation for financial statement reporting purposes in 2006 in accordance with SFAS No. 123(R) for all outstanding

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restricted stock units and performance stock units granted to each named executive officer. See footnote 22 to the Consolidated Financial Statements contained in the Corporation’s 2006 Financial Annual Report to Shareholders for a discussion of the assumptions made by the Corporation in the valuation of these stock unit awards, including that dividend equivalents will be paid on these stock unit awards.

The total value of the restricted stock units and performance stock units reported in the “Stock Awards” column is different from the total grant date fair value of the restricted stock unit and performance stock unit awards granted in 2006 because the “Stock Awards” column includes, as required by SFAS No. 123 (R), the expense of awards granted prior to 2006 where the vesting period for those awards extends into 2006. The grant date fair value for restricted stock units and performance stock units granted in 2006 to the named executive officers, as well as the grant date fair value for 2006 total stock units, was as follows:

The “Compensation Discussion and Analysis—Elements of the Corporation’s Executive Compensation Program—Equity Compensation—Restricted Stock Units;—Performance Stock Units” section of this proxy statement contains vesting and other additional information about the restricted stock unit and performance stock unit awards made in 2006.

Dividend equivalents on restricted stock units and performance stock units held or deferred by a named executive officer are paid on a current basis. Dividend equivalents paid on restricted stock units and performance stock units for each named executive officer for 2006 were: Mr. Osborn: $364,598; Mr. Fradkin: $42,411; Mr. Waddell: $60,764; Mr. Morrison: $56,634; Mr. Theriault: $54,794; Ms. Barrat: $33,671; and Mr. Toth: $41,620.

(3) Option Awards. This column shows the dollar amount recognized by the Corporation for financial reporting purposes in 2006 in accordance with SFAS No. 123(R) for all outstanding stock options granted to each named executive officer. See footnote 22 to the Consolidated Financial Statements contained in the Corporation’s 2006 Financial Annual Report to Shareholders for a discussion of the assumptions made by the Corporation in the valuation of these option awards, including that dividend equivalent payments are factored into the option valuation.

Under SFAS No. 123(R), the fair value of option awards is recognized as expense over the vesting period of the award except where it is accelerated for employees who, under the award agreements, are retirement-eligible or will become retirement-eligible during the vesting period. The value of the stock

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options reported in the “Option Awards” column is different from the grant date fair value of the stock options granted in 2006 for the following reasons: (i) the “Option Awards” column includes, as required by SFAS No. 123(R), the expense of awards granted prior to 2006 where the vesting period for those awards extends into 2006 to the extent the expense was not previously accelerated due to retirement-eligibility of the employees, and (ii) the “Option Awards” column includes the full or accelerated expense for those employees that were retirement-eligible prior to 2006 (Mr. Osborn and Ms. Barrat), were deemed retirement-eligible in 2006 (Mr. Morrison), or will become retirement-eligible during the vesting period of the 2006 option awards (Mr. Waddell). In contrast, the expense of the option awards for non-retirement-eligible employees (Mr. Fradkin, Mr. Theriault, and Mr. Toth) is spread equally over the full vesting period. The grant date fair value for stock options granted in 2006 to the named executive officers was as follows:

The “Compensation Discussion and Analysis—Elements of the Corporation’s Executive Compensation Program—Equity Compensation—Stock Options” section of this proxy statement contains vesting and other additional information about the stock option awards made in 2006.

(4) Non-Equity Incentive Plan Compensation. This column shows the annual cash incentives earned by the named executive officers in 2006 under the MPP. As described in the “Compensation Discussion and Analysis—Annual Cash Incentives” section of this proxy statement, these annual cash incentives are fully deductible as performance based compensation under Section 162(m) of the Code.

(5) Change in Pension Value and Nonqualified Deferred Compensation Earnings. This column shows the increase from September 30, 2005 to September 30, 2006 (the measurement date used for reporting purposes in the Corporation’s 2006 Financial Annual Report to Shareholders) in the actuarial present value of accumulated benefits for each named executive officer under the Pension Plan and the Supplemental Pension Plan. It does not include any above-market or preferential earnings on deferred compensation as the Corporation does not pay above-market or preferential interest on the deferred compensation of its named executive officers.

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(6) All Other Compensation. The table below provides a breakdown of the amounts shown in the “All Other Compensation” column for each named executive officer in 2006.

(a) Perquisites. All perquisites are valued based on the aggregate incremental cost to the Corporation, as required by the SEC’s rules. The “Compensation Discussion and Analysis—Perquisites and Other Benefits” section of this proxy statement contains additional information about the perquisites provided by the Corporation to its named executive officers.

(b) Relocation. This amount represents the payment of property management expenses and closing costs for Ms. Barrat under the Corporation’s relocation program in connection with the sale of her home in California and her relocation to Illinois.

(c) Tax Reimbursements. This column shows the amount of tax reimbursement associated with the use of the Corporation’s automobiles for business-related purposes and, in Ms. Barrat’s case, her relocation expenses.

(d) TIP/Supplemental TIP Contributions. This column reflects matching and profit sharing contributions made on behalf of the named executive officers to TIP and Supplemental TIP, both of which are defined contribution plans, as described above under “Compensation Discussion and Analysis—Elements of the Corporation’s Executive Compensation Program—Retirement Plans—TIP and Supplemental TIP.”

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GRANTS OF PLAN-BASED AWARDS

The following table sets forth information for each named executive officer with respect to:

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(1) Grant Date. In each case, the “Grant Date” reflects the date on which the Compensation and Benefits Committee acted to approve the grant of the award.

(2) Estimated Possible Payouts Under Non-Equity Incentive Plan Awards. These columns show the range of potential payouts under the MPP based on the Corporation’s performance in 2006. “Threshold” and “Target” awards under the MPP were not determinable as the MPP authorizes the Committee to award annual cash incentives ranging from $0 to the following maximum award limitations (“Maximum” awards): Chairman and CEO—0.6% of consolidated net income; President and COO—0.4% of consolidated net income; and the other named executive officers—0.3% of consolidated net income. Where “Target” awards are not determinable, the SEC rules require the disclosure of representative amounts based on the previous fiscal year’s performance. Accordingly, the Corporation has disclosed in the “Target” column the MPP awards paid to the named executive officers for 2005, recognizing that these amounts are not entirely representative for Mr. Waddell and Ms. Barrat because they were in different job positions at that time. The amounts paid under the MPP for 2006 appear in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table.

(3) Estimated Future Payouts Under Equity Incentive Awards. These columns show the range of potential performance stock units that could be earned by the named executive officers based on grants made under the 2002 Stock Plan in 2006. These performance stock units vest subject to the satisfaction of a performance goal based on the Corporation’s average earnings per share growth over the three-year period ending December 31, 2008, as follows:

As shown, average three-year earnings per share growth below 8% will result in no vesting of any stock units; average three-year earnings per share growth of 8% will result in the vesting of 75% of the stock units (“Threshold”); average three-year earnings per share growth of 10% will result in the vesting of all stock units (“Target”); and average three-year earnings per share growth of 12% or more will result in the vesting of 125% of the stock units awarded (“Maximum”).

(4) All Other Stock Awards: Number of Shares of Stock or Units. This column shows the number of restricted stock units granted to the named executive officers in 2006.

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(5) All Other Option Awards: Number of Securities Underlying Options. This column shows the number of shares that may be issued to the named executive officers upon exercise of stock options granted in 2006.

(6) Exercise Price. In 2006, the exercise price for all stock options was the average of the high and low sale prices of the Corporation’s common stock on the date of grant. In each case, the exercise price was equal to or greater than the closing market price of the Corporation’s common stock on the date of grant.

(7) Grant Date Fair Value. The grant date fair value of the stock and option awards was computed in accordance with SFAS No.
123(R).

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

The following table sets forth information for each named executive officer with respect to:

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