TABLE OF CONTENTS

 

 

PROXY SUMMARY

This summary highlights certain information contained in this Proxy Statement. The accompanying proxy is solicited on behalf of the Board of Directors (the “Board”) of Northern Trust Corporation (the “Corporation”) for use at the Corporation’s Annual Meeting of Stockholders to be held on Tuesday, April 20, 2021 (the “Annual Meeting”). You should read the entire Proxy Statement carefully before voting. On or about March 9, 2021, we began mailing or otherwise making available our proxy materials, including a copy of our Annual Report on Form 10-K for the year ended December 31, 2020, to all stockholders entitled to vote at the Annual Meeting.

For more information on voting and attending the Annual Meeting, see “General Information about the Annual Meeting” on page 71 of this Proxy Statement.

 

VOTING MATTERS		Board Recommendation		Page
Item 1 – Election of Directors		FOR			9
Item 2 – Advisory Vote on Executive Compensation		FOR			28
Item 3 – Ratification of the Independent Registered Public Accounting Firm		FOR			67

 

COVID-19 RESPONSE

The COVID-19 pandemic presented health and economic challenges on an unprecedented scale in 2020. During this time, Northern Trust focused on the health and well-being of its workforce, meeting its clients’ needs and supporting its communities.

Workforce

In 2020, Northern Trust implemented its global business resiliency plan, with the vast majority of staff working remotely throughout the year. To ensure the health and well-being of those members of our workforce for whom it was essential to work from one of our locations, as well as our clients and other visitors, several social distancing elements and other protective measures were implemented, such as temperature screenings, where allowable by law, distribution of personal protective equipment, and workforce health self-certifications. Although planning is underway to return to the office on a location-by-location basis when conditions permit, the vast majority of staff is expected to continue to work remotely for some time to come.

Client Service

During the second quarter of 2020, Northern Trust became a lender under the Paycheck Protection Program (“PPP”), administered by the U.S. Small Business Administration (“SBA”) and intended to aid small businesses during the COVID-19 pandemic. Throughout 2020, Northern Trust originated more than 1,100 loans, with an aggregate original principal amount exceeding $220.0 million, under the PPP. In addition to lending under the PPP, Northern Trust elected to apply certain forms of relief to borrowers in response to the COVID-19 pandemic, including loan modifications and payment deferrals.

Community Support

In 2020, Northern Trust provided $2.5 million in COVID-19 relief support to numerous organizations serving those most affected by the pandemic. Northern Trust also provided $110.5 million in low-cost funding to assist Community Development Financial Institutions (CDFIs), which are instrumental in providing loans to small businesses and non-profit organizations under the PPP, throughout the year. The funding helps meet urgent demand among small businesses and non-profit groups by providing flexible terms and low rates. CDFIs provide loans, investments, financial services and technical assistance to underserved populations and communities. This funding was separate and distinct from the more than $220.0 million of loans made under the PPP.

 

PROXY SUMMARY

 

2020 FINANCIAL PERFORMANCE HIGHLIGHTS

While our financial performance during 2020 was impacted by low interest rates and unprecedented challenges related to the COVID-19 pandemic, the three pillars of our financial strategy remained unchanged:

 

●

Achieving Growth across the business, as demonstrated by continued growth in revenue and trust, investment and other servicing fees despite a substantial decline in net interest income and increased money market mutual fund fee waivers, each related to the current low-interest-rate environment.

 

 

 

●

Driving Productivity and Profitability, as demonstrated by our noninterest expense as a percentage of our trust, investment and other servicing fees remaining below the mid-point of levels reported in the most recent five years. Nevertheless, an increased provision for credit losses driven by current and projected economic conditions and downgrades in our loan portfolio resulting from the ongoing pandemic, as well as a substantial decline in net interest income and increased money market mutual fund fee waivers related to the low-interest-rate environment experienced in 2020, drove decreases in pre-tax margin, net income and earnings per share levels relative to recent years. We remain focused on continuing to improve our productivity and profitability, including through expense management initiatives and ongoing efforts to further embed a culture of sustainable expense management across the organization.

 

 

 

PROXY SUMMARY

 

 

●

Generating Strong and Sustainable Stockholder Returns, as demonstrated by our return on average common equity (“ROE”) remaining within our target range of 10 – 15%, and the consistency of our quarterly dividends to the holders of our common stock.

 

 

We achieved these financial results while continuing to support our clients’ liquidity needs and maintaining strong capital ratios, with all ratios exceeding those required for classification as “well capitalized” under federal bank regulatory capital requirements.

 

2020 CORPORATE STRATEGIC ACHIEVEMENTS

Execution on our strategies also was demonstrated through various strategic achievements, including:

 

●

The continued success of our Wealth Management business’s holistic approach to addressing unique client needs, and its differentiated service capabilities, including The Northern Trust Institute, which harnesses experience developed from advising generations of wealthy families to provide data-driven insights and guide our clients in achieving optimal wealth outcomes for their personal circumstances.

 

●

Our Asset Management business’s continued expansion of product and service offerings in the areas of greatest demand, including the launch of a new proprietary environmental, social and governance (“ESG”) scoring methodology that enables the integration of sustainability into investment portfolios in a more transparent and focused manner.

 

●

Continued expansion of the Corporate & Institutional Services (“C&IS”) business’s product and service capabilities, including advanced currency management and outsourced front-office trading solutions.

 

PROXY SUMMARY

 

●

Our continued commitment to the communities in which we operate, with the launch of a new, highly focused philanthropic strategy that concentrates our volunteerism and contributions on four key areas of fundamental impact—educational excellence, food security, accessible healthcare and affordable housing—and our pledge of $20 million over the next five years with the goal of reducing the economic opportunity gap to facilitate the long-term financial success of those who face unfair hurdles because of their race, ethnicity, gender, geography or socio-economic conditions.

 

●

The successful completion of our “Value for Spend” expense management initiative, announced in October 2017 with the goal of realizing $250 million of expense run-rate savings by 2020, and ongoing efforts to further embed a culture of sustainable expense management across the organization.

 

2020 COMPENSATION OUTCOMES

Based upon its review of our corporate performance and the individual performance of each named executive officer, discussed in the Compensation Discussion and Analysis beginning on page 29 of this Proxy Statement, the Compensation and Benefits Committee approved the compensation amounts outlined in the table below. This table provides a comprehensive summary of each named executive officer’s total direct compensation for the 2020 and 2019 performance years. This perspective may be useful in reviewing key incentive compensation decisions, as this is how the Committee considers performance and pay, with incentive compensation generally reflective of prior year’s performance. It should be noted that the table below is not intended to be a substitute for the Summary Compensation Table on page 50, as certain amounts in the table below are different than the amounts in the Summary Compensation Table. The most significant difference is that this table reflects long-term incentive awards granted in February 2021 and February 2020 for the 2020 and 2019 performance years, respectively, while the Summary Compensation Table provides the value of the equity awards for the year in which they were granted.

 

														Long-Term Incentives
Executive		Year				Salary (1)				Short-Term Annual Cash Incentive				Performance Stock Units				Restricted Stock Units				Total Incentive Compensation (2)				Total
Michael G. O’Grady Chairman, President and Chief Executive Officer			2020			$	950,000			$	1,175,000			$	4,436,250			$	2,388,750			$	8,000,000			$	8,950,000
			2019				950,000				2,075,000				4,436,250				2,388,750				8,900,000				9,850,000
Jason J. Tyler(3) Chief Financial Officer			2020				500,000				650,000				1,137,500				612,500				2,400,000				2,900,000
			2019				—				—				—				—				—				—
Peter B. Cherecwich President—Corporate & Institutional Services			2020				625,000				900,000				1,592,500				857,500				3,350,000				3,975,000
			2019				625,000				1,050,000				1,592,500				857,500				3,500,000				4,125,000
Steven L. Fradkin President—Wealth Management			2020				625,000				950,000				1,690,000				910,000				3,550,000				4,175,000
			2019				625,000				1,110,000				1,683,500				906,500				3,700,000				4,325,000
Shundrawn A. Thomas(3) President—Asset Management			2020				625,000				900,000				1,592,500				857,500				3,350,000				3,975,000
			2019				—				—				—				—				—				—

 

(1) Represents the applicable named executive officer’s salary, as of February 2020 and 2019, respectively.

(2) Represents the total cash and equity incentive awards received by the applicable named executive officer in February 2021 for the 2020 performance year and February 2020 for the 2019 performance year, respectively.

(3) Messrs. Thomas and Tyler were not named executive officers in 2019, therefore, their 2019 total direct compensation is not provided.

 

PROXY SUMMARY

 

2020 OVERALL PAY MIX

Consistent with our pay for performance philosophy, the pay mix for our CEO and each of our other named executive officers heavily emphasizes incentive compensation. Our long-term incentive mix further emphasizes performance-based pay, with 65% of the long-term incentives being awarded in performance stock units earned based on performance over a three-year period, and 35% being awarded in restricted stock units.

 

 

PROXY SUMMARY

 

BOARD OF DIRECTORS

 

Committees of the Board

Other Public Company or Investment Company Boards

Director

Age

Audit

Business Risk

Capital Governance

Compensation and Benefits

Corporate Governance

Executive

Linda Walker Bynoe Independent Director Since 2006

68

✓

C

✓

2

Susan Crown Independent Director Since 1997

62

✓

✓

1

Dean M. Harrison Independent Director Since 2015

66

✓

C*

✓

0

Jay L. Henderson Lead Director /Independent Director Since 2016

65

✓

✓

✓

✓

✓

2

Marcy S. Klevorn Independent Director Since 2019

61

✓

✓*

1

Siddharth N. “Bobby” Mehta Independent Director Since 2019

62

✓*

✓

3

Michael G. O’Grady Chairman, President and Chief Executive Officer Director Since 2017

55

C

0

Jose Luis Prado Independent Director Since 2012

66

✓

✓

1

Thomas E. Richards Independent Director Since 2015

66

✓

C

✓

1

Martin P. Slark Independent Director Since 2011

66

1

David H. B. Smith, Jr. Independent Director Since 2010

54

C

✓

✓

1

Donald Thompson Independent Director Since 2015

57

✓

C

✓

2

Charles A. Tribbett III Independent Director Since 2005

65

✓

✓

0

C - Chair        ✓ - Member        * - Cybersecurity Risk Oversight Subcommittee member

 

PROXY SUMMARY

 

Board Tenure, Age and Diversity Statistics

 

 

GOVERNANCE HIGHLIGHTS

 

 

What We Do		What We Don’t Do
✓   Majority Independent Directors   ✓   Engaged Lead Director   ✓   Proxy Access Rights   ✓   Stockholder Right to Call Special Meetings   ✓   Frequent Executive Sessions for Independent Directors   ✓   Annual Strategic Planning Meeting with Board and Executive Officers   ✓   Regular Rotations of Committee Chairs   ✓   Regular Reviews of Governance Documents   ✓   Annual Board and Committee Self-Evaluations		✗  Plurality Voting in Uncontested Director Elections   ✗  Staggered Board   ✗  Poison Pill   ✗  Supermajority Voting Requirements   ✗  Overboarding of Directors

 

PROXY SUMMARY

 

EXECUTIVE COMPENSATION HIGHLIGHTS

 

What We Do				What We Don’t Do
✓  Closely align pay and performance, with the Compensation and Benefits Committee validating this alignment annually   ✓  Ensure performance-based compensation comprises the most significant portion of incentive compensation, with 65% of long-term incentives being awarded in performance stock units based on performance over a three-year period   ✓  Subject short- and long-term incentive awards to potential forfeiture or clawback in the event of misconduct resulting in a restatement of our financial statements and certain other types of misconduct   ✓  Ensure our executives meet robust stock ownership guidelines, including holding requirements for any executive below the stock ownership guidelines   ✓  Use an independent compensation consultant to advise the Compensation and Benefits Committee   ✓  Ensure overlapping membership between the Compensation and Benefits Committee and our Audit and Business Risk Committees				✗  Excise tax gross-ups for executive change in control arrangements   ✗  Single-trigger change in control benefits   ✗  Short selling, margining, hedging, pledging or hypothecating company shares permitted under our Securities Transactions Policy and Procedures   ✗  Compensation plans that encourage excessive risk-taking   ✗  Excessive perquisites   ✗  Repricing of underwater options   ✗  Dividend equivalents distributed on unvested performance or restricted stock unit awards

 

IMPORTANT DATES FOR 2022 ANNUAL MEETING

 

 

Stockholder Submission				Window for Submission
Proposals for inclusion in the proxy statement		g		On or before November 9, 2021
Other proposals (not included in the proxy statement)		g		Between November 21, 2021 and December 21, 2021
Director nomination under proxy access provisions		g		Between October 10, 2021 and November 9, 2021

 

 

ITEM 1—ELECTION OF DIRECTORS

Stockholders will be asked to elect thirteen directors at the Annual Meeting. Each of the thirteen nominees is currently serving as a director of the Corporation and its principal subsidiary, The Northern Trust Company (the “Bank”).

Each of the thirteen director nominees has consented to serve as a director if elected at the Annual Meeting. Each nominee elected as a director will serve until the next Annual Meeting of Stockholders or until his or her successor is 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.

As discussed further under “Corporate Governance—Director Nominations and Qualifications and Proxy Access,” in evaluating director nominees, the Corporate Governance Committee considers a variety of factors, including relevant business and industry experience, professional background, age, current employment, community service and other board service. The Committee also considers the racial, ethnic, gender identity and other forms of diversity represented on the Board in assessing nominees. Accordingly, the thirteen director nominees possess a wide variety of experience, qualifications and skills, which equip the Board with the collective expertise to perform its oversight function effectively. Each of the candidates also has a reputation for, and long record of, integrity and good business judgment; has experience in leadership positions with a high degree of responsibility; is free from conflicts of interest that could interfere with his or her duties to the Corporation and its stockholders; and is willing and able to make the necessary commitment of time and attention required for effective Board service.

Further information with respect to the nominees for election to the Board at the Annual Meeting, including a summary of certain key skills, experience, and demographic background information, is set forth on the following pages.

 

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

 

 

INFORMATION ABOUT THE NOMINEES FOR DIRECTOR

Biographical Information

The following information about the nominees for election to the Board at the Annual Meeting is as of the date of this Proxy Statement, unless otherwise indicated.

 

LINDA WALKER BYNOE

Independent Director
Director Since: 2006 Age: 68   Board Committees   ●  Compensation and Benefits   ●  Corporate Governance (Chair)   ●  Executive		Professional Experience   ●   Telemat Limited LLC (project management and consulting firm)   ¡   President and Chief Executive Officer, since 1995   Current Public and/or Investment Company Directorships   ●   Equity Residential, since 2009   ●   Prudential Retail Mutual Funds, since 2005   Other Recent Public and/or Investment Company Directorships   ●   Anixter International Inc., 2006 to June 2020   Qualifications   The Board concluded that Ms. Bynoe should serve as a director based on her diverse consulting and investment experience, her expertise in public accounting, corporate governance, managing a private equity investment portfolio and strategy development and her experience as a director of other complex global corporations.

 

SUSAN CROWN

Independent Director
Director Since: 1997 Age: 62   Board Committees   ●  Business Risk   ●  Corporate Governance		Professional Experience   ●   Owl Creek Partners, LLC (private equity firm)   ¡   Chairman and Chief Executive Officer, since 2010   ●   Susan Crown Exchange Inc. (social investment organization)   ¡   Chairman and Founder, since 2009   ●   Henry Crown and Company (company with diversified investments)   ¡   Vice President, 1984 to 2015   Current Public and/or Investment Company Directorships   ●   Illinois Tool Works Inc., since 1994   Qualifications   The Board concluded that Ms. Crown should serve as a director based on her leadership, risk oversight, governance, and corporate responsibility experience developed through service at various large organizations, both commercial and nonprofit, including as Chair of the Board of Trustees at Rush University Medical Center and the Rush System.

 

INFORMATION ABOUT THE NOMINEES FOR DIRECTOR

 

DEAN M. HARRISON

Independent Director
Director Since: 2015 Age: 66   Board Committees   ●  Audit   ●  Business Risk (Chair)*   ●  Executive   *  Also a member of the Cybersecurity Risk Oversight Subcommittee		Professional Experience   ●   Northwestern Memorial HealthCare (the primary teaching affiliate of Northwestern University Feinberg School of Medicine and parent corporation of Northwestern Memorial Hospital)   ¡   President and Chief Executive Officer, since 2006   Qualifications   The Board concluded that Mr. Harrison should serve as a director based on his extensive experience leading a large, complex organization in a highly regulated industry.

 

JAY L. HENDERSON

Lead Director / Independent Director
Director Since: 2016 Age: 65   Board Committees   ●  Audit   ●  Capital Governance   ●  Compensation and Benefits   ●  Corporate Governance   ●  Executive		Professional Experience   ●   PricewaterhouseCoopers LLP (professional services firm)   ¡   Vice Chairman, Client Service for PricewaterhouseCoopers LLP, 2007 to 2016   ¡   Managing Partner of the Greater Chicago Market, 2003 to 2013   Current Public and/or Investment Company Directorships   ¡   Illinois Tool Works Inc., since 2016   ¡   The J. M. Smucker Company, since 2016   Qualifications   The Board concluded that Mr. Henderson should serve as a director based on his extensive experience working with, and serving as a director of, various complex global organizations across multiple markets and industry sectors, as well as his leadership experience in various roles at PricewaterhouseCoopers LLP.

 

INFORMATION ABOUT THE NOMINEES FOR DIRECTOR

 

MARCY S. KLEVORN

Independent Director
Director Since: 2019 Age: 61   Board Committees   ●  Audit   ●  Business Risk*   * Also the Chair of the Cybersecurity Risk Oversight Subcommittee		Professional Experience   ●   Ford Motor Company (global automaker)   ¡   Chief Transformation Officer, May 2019 to October 2019   ¡   Executive Vice President and President, Mobility, 2017 to May 2019   ¡   Chief Information Officer and Group Vice President, Information Technology, 2015 to 2017   ¡   Director, Office of the Chief Information Officer, 2013 to 2015   Current Public and/or Investment Company Directorships   ●   Humana, Inc., since February 2021   Other Recent Public and/or Investment Company Directorships   ●   Pivotal Software, Inc., 2016 to 2019   Qualifications   The Board concluded that Ms. Klevorn should serve as a director based on her extensive experience with respect to the innovation and application of cutting-edge technologies.

 

SIDDHARTH N. “BOBBY” MEHTA

Independent Director
Director Since: 2019 Age: 62   Board Committees   ●  Business Risk*   ●  Capital Governance   * Also a member of the Cybersecurity Risk Oversight Subcommittee		Professional Experience   ●   TransUnion (global risk and information solutions provider)   ¡   President and Chief Executive Officer, 2007 to 2012   ●   HSBC Finance Corporation (owner and servicer of a portfolio of residential real estate loans) and HSBC North America Holdings, Inc. (holding company for HSBC Holdings plc’s operations in the United States)   ¡   Chief Executive Officer, 2005 to 2007   Current Public and/or Investment Company Directorships   ●   The Allstate Corporation, since 2014   ●   Jones Lang LaSalle Incorporated, since 2019   ●   TransUnion, since 2007   Other Recent Public and/or Investment Company Directorships   ●   Piramal Enterprises Limited, 2013 to February 2020   Qualifications   The Board concluded that Mr. Mehta should serve as a director based on his management and board experience at large, complex organizations and his experience in the financial services industry.

 

INFORMATION ABOUT THE NOMINEES FOR DIRECTOR

 

MICHAEL G. O’GRADY

Chairman, President and Chief Executive Officer
Director Since: 2017 Age: 55   Board Committees   ●  Executive (Chair)		Professional Experience   ●   Northern Trust Corporation and The Northern Trust Company   ¡   Chairman of the Board, since January 2019   ¡   Chief Executive Officer, since 2018   ¡   President, since 2017   ¡   President, Corporate & Institutional Services, 2014 to 2016   ¡   Chief Financial Officer, 2011 to 2014   ●   Bank of America Merrill Lynch   ¡   Managing Director, Investment Banking Group, 2000 to 2011   Qualifications   The Board concluded that Mr. O’Grady should serve as a director based on his experience and ongoing responsibilities with respect to Northern Trust’s businesses.

 

JOSE LUIS PRADO

Independent Director
Director Since: 2012 Age: 66   Board Committees   ●  Compensation and Benefits   ●  Corporate Governance		Professional Experience   ●   Tropicale Foods Group (frozen foods manufacturer)   ¡   Chairman of the Board, since March 2020   ●   Evans Food Group, Ltd. (global food company)   ¡   Vice Chairman, since 2019   ¡   Chairman and Chief Executive Officer, 2016 to 2019   ●   PepsiCo, Inc.   ¡   President, Quaker Oats North America, 2011 to 2014   Current Public and/or Investment Company Directorships   ●   Hormel Foods Corporation, since 2019   Other Recent Public and/or Investment Company Directorships   ●   Brinker International, Inc., 2015 to 2019   Qualifications   The Board concluded that Mr. Prado should serve as a director based on his management, marketing and risk oversight experience at a complex global corporation and his substantial international experience.

 

INFORMATION ABOUT THE NOMINEES FOR DIRECTOR

 

THOMAS E. RICHARDS

Independent Director
Director Since: 2015 Age: 66   Board Committees   ●  Business Risk   ●  Compensation and Benefits (Chair)   ●  Executive		Professional Experience   ●   CDW Corporation (provider of integrated information technology solutions in the United States, Canada and the United Kingdom)   ¡   Executive Chairman, 2013 to 2019   ¡   Chief Executive Officer, 2011 to 2018   ¡   President, 2009 to 2018   Current Public and/or Investment Company Directorships   ●   BCE, Inc., since May 2020   Other Recent Public and/or Investment Company Directorships   ●   CDW Corporation, 2011 to 2019   Qualifications   The Board concluded that Mr. Richards should serve as a director based on his experience leading a large, complex organization and his experience in the information technology industry.

 

MARTIN P. SLARK

Independent Director
Director Since: 2011 Age: 66		Professional Experience   ●   Molex LLC (manufacturer of electronic, electrical and fiber optic interconnection products and systems)   ¡   Chief Executive Officer, 2005 to 2018   Current Public and/or Investment Company Directorships   ●   Hub Group, Inc., since 1996   Qualifications   The Board concluded that Mr. Slark should serve as a director based on his experience leading a complex global corporation and his risk oversight experience as Chief Executive Officer of Molex LLC and as a director of other large, complex corporations, including Koch Industries, Inc. and Liberty Mutual Insurance Company.

 

INFORMATION ABOUT THE NOMINEES FOR DIRECTOR

 

DAVID H. B. SMITH, JR.

Independent Director
Director Since: 2010 Age: 54   Board Committees   ●  Audit (Chair)   ●  Capital Governance   ●  Executive		Professional Experience   ●   Mutual Fund Directors Forum (nonprofit membership organization for investment company directors)   ¡   Executive Vice President, Policy & Legal Affairs and General Counsel, since 2005   ●   U.S. Securities and Exchange Commission   ¡   Associate Director, Division of Investment Management, 2001 to 2005   Current Public and/or Investment Company Directorships   ●   Illinois Tool Works Inc., since 2009   Qualifications   The Board concluded that Mr. Smith should serve as a director based on his regulatory and leadership experience in the finance industry gained from his roles at the U.S. Securities and Exchange Commission and the Mutual Fund Directors Forum. The Board also considered that Mr. Smith’s interest as a beneficiary of a trust that holds a significant amount of the Corporation’s common stock further aligns his interests with the interests of the Corporation’s stockholders.

 

DONALD THOMPSON

Independent Director
Director Since: 2015 Age: 57   Board Committees   ●  Audit   ●  Capital Governance (Chair)   ●  Executive		Professional Experience   ●   Cleveland Avenue, LLC (food and beverage accelerator and investment company)   ¡   Founder and Chief Executive Officer, since 2015   ●   McDonald’s Corporation (global foodservice retailer)   ¡   President and Chief Executive Officer, 2012 to 2015   Current Public and/or Investment Company Directorships   ●   Royal Caribbean Cruises Ltd., since 2015   ●   Beyond Meat, Inc., since 2015 (public company since 2019)   Other Recent Public and/or Investment Company Directorships   ●   McDonald’s Corporation, 2011 to 2015   Qualifications   The Board concluded that Mr. Thompson should serve as a director based on his management and board experience at other complex global corporations.

 

INFORMATION ABOUT THE NOMINEES FOR DIRECTOR

 

CHARLES A. TRIBBETT III

Independent Director
Director Since: 2005 Age: 65   Board Committees   ●  Compensation and Benefits   ●  Corporate Governance		Professional Experience   ●   Russell Reynolds Associates (global executive recruiting firm)   ¡   Vice Chairman of Board and CEO Advisory Group, since January 2020   ¡   Managing Director, since 1989   Qualifications   The Board concluded that Mr. Tribbett should serve as a director based on his global leadership consulting experience evaluating and identifying senior management professionals and his leadership experience as Vice Chairman of Russell Reynolds Associates.

 

INFORMATION ABOUT THE NOMINEES FOR DIRECTOR

 

 

BOARD AND BOARD COMMITTEE INFORMATION

Our Board currently consists of thirteen members. The Board has determined that each of the following twelve current directors is independent in accordance with our independence standards, which conform with the U.S. Securities and Exchange Commission (the “SEC”) rules and the listing standards of The NASDAQ Stock Market LLC (“NASDAQ”): Linda Walker Bynoe, Susan Crown, Dean M. Harrison, Jay L. Henderson, Marcy S. Klevorn, Siddharth N. “Bobby” Mehta, Jose Luis Prado, Thomas E. Richards, Martin P. Slark, David H. B. Smith, Jr., Donald Thompson and Charles A. Tribbett III.

During 2020, the Corporation’s Board held nine meetings. All persons who were directors during 2020 attended at least 75% of the total meetings of the Board and the committees on which they served occurring during the period in which they served, except for Mr. Richards, who attended approximately 65% of such meetings due to an extended illness. Our Corporate Governance Guidelines state that all directors are expected to attend each Annual Meeting of Stockholders. In accordance with this expectation, all of the directors then serving attended the 2020 Annual Meeting of Stockholders held on April 21, 2020.

Board Committees

The standing committees of the Board are the Audit Committee, the Business Risk Committee, the Capital Governance Committee, the Compensation and Benefits Committee, the Corporate Governance Committee and the Executive Committee. On January 19, 2021, the Business Risk Committee established the Cybersecurity Risk Oversight Subcommittee to assist the Business Risk Committee in discharging its oversight duties with respect to cybersecurity risk. With the exception of the Executive Committee, all standing committees are composed solely of independent directors. Consequently, independent directors directly oversee critical matters and appropriately oversee the Chairman and CEO and other members of senior management. Each standing committee and subcommittee is governed by a written charter. These charters detail the duties and responsibilities of each committee and subcommittee and are available on the Corporation’s website at www.northerntrust.com.

Additional information regarding the roles, responsibilities and composition of the Board’s standing committees and subcommittees is set forth below.

 

BOARD AND BOARD COMMITTEE INFORMATION

 

AUDIT COMMITTEE
MEMBERS   David H. B. Smith, Jr. (Chair)   Dean M. Harrison   Jay L. Henderson   Marcy S. Klevorn   Donald Thompson		KEY RESPONSIBILITIES / AREAS OF OVERSIGHT
		The Audit Committee assists the Board in its oversight of: ●   the integrity of the organization’s consolidated annual and quarterly financial statements and earnings releases;   ●   the organization’s compliance with accounting, legal and regulatory requirements;   ●   the qualifications and independence of the Corporation’s public accountants; and   ●   the performance of the organization’s internal audit function and the Corporation’s public accountants.
The Board has determined that all members of the Audit Committee are independent under SEC rules and NASDAQ listing standards. The Board also has determined that all Audit Committee members have the financial experience and knowledge required for service on the Committee, and that Messrs. Harrison, Henderson, Smith, and Thompson each satisfy the definition of “audit committee financial expert,” under SEC rules.   The Audit Committee met seven times in 2020.

 

 

BUSINESS RISK COMMITTEE
MEMBERS   Dean M. Harrison (Chair)   Susan Crown   Marcy S. Klevorn   Siddharth N. “Bobby” Mehta   Thomas E. Richards		KEY RESPONSIBILITIES / AREAS OF OVERSIGHT
		The Business Risk Committee assists the Board in its oversight of:   ●   the risk management policies of the Corporation’s global operations;   ●   the operation of the Corporation’s global risk management framework; and   ●   management’s procedures for identifying, measuring, aggregating, and reporting on:   ¡   the Corporation’s risk-based capital requirements; and ¡   the risks inherent in the businesses of the Corporation and its subsidiaries in the following categories: credit risk, market and liquidity risk, fiduciary risk, operational risk, compliance risk and strategic risk.
The Board has determined that all members of the Business Risk Committee are independent under SEC rules and NASDAQ listing standards.   The Business Risk Committee met eight times in 2020.   As noted above, the Business Risk Committee has established a Cybersecurity Risk Oversight Subcommittee to assist the Business Risk Committee with oversight of cybersecurity risk. The subcommittee consists of the following directors: Marcy S. Klevorn (Chair), Dean M. Harrison, and Siddharth N. “Bobby” Mehta. The Cybersecurity Risk Oversight Subcommittee was established on January 19, 2021 and therefore did not meet in 2020.

 

 

 

CAPITAL GOVERNANCE COMMITTEE
MEMBERS   Donald Thompson (Chair)   Jay L. Henderson   Siddharth N. “Bobby” Mehta   David H. B. Smith, Jr.		KEY RESPONSIBILITIES / AREAS OF OVERSIGHT
		The Capital Governance Committee assists the Board in its oversight of the capital management and resolution planning activities of the Corporation, including:   ●   the capital adequacy assessments, forecasting, and stress-testing processes and activities of the Corporation and its subsidiaries, including with respect to the annual Comprehensive Capital Analysis and Review (“CCAR”) exercise; ●   the Corporation’s annual capital plan, including proposed capital actions; ●   the Corporation’s and the Bank’s regulatory capital ratios and capital levels; and ●   the Corporation’s resolution plans.
The Board has determined that all members of the Capital Governance Committee are independent under SEC rules and NASDAQ listing standards.   The Capital Governance Committee met twelve times in 2020.

 

BOARD AND BOARD COMMITTEE INFORMATION

 

COMPENSATION AND BENEFITS COMMITTEE
MEMBERS   Thomas E. Richards (Chair)   Linda Walker Bynoe   Jay L. Henderson   Jose Luis Prado   Charles A. Tribbett III		KEY RESPONSIBILITIES / AREAS OF OVERSIGHT
		The Compensation and Benefits Committee assists the Board in its oversight of:   ●  the compensation of the directors and executive officers of the Corporation and its subsidiaries;   ●  the employee benefit and equity-based plans of the organization; and   ●  management development and succession planning, including with respect to the position of CEO.
The Board has determined that all members of the Compensation and Benefits Committee are independent under SEC rules and NASDAQ listing standards.   The Compensation and Benefits Committee met six times in 2020.

 

CORPORATE GOVERNANCE COMMITTEE
MEMBERS   Linda Walker Bynoe (Chair)   Susan Crown   Jay L. Henderson   Jose Luis Prado   Charles A. Tribbett III		KEY RESPONSIBILITIES / AREAS OF OVERSIGHT
		The Corporate Governance Committee assists the Board with:   ●  the identification of candidates for nomination or appointment as directors;   ●  the oversight of the Board’s committee structure;   ●  the oversight of the annual evaluation of the Board and its committees;   ●  the development of the Corporation’s Corporate Governance Guidelines;   ●  the appointment of a successor in the event of the unanticipated death, disability or resignation of the Corporation’s CEO;   ●  the procedures relating to stockholder communications with the Board; and   ●  the corporate citizenship and social responsibility matters of significance to the Corporation and its subsidiaries.
The Board has determined that all members of the Corporate Governance Committee are independent under SEC rules and NASDAQ listing standards.   The Corporate Governance Committee met four times in 2020.

 

EXECUTIVE COMMITTEE
MEMBERS   Michael G. O’Grady (Chair)   Linda Walker Bynoe   Dean M. Harrison   Jay L. Henderson   Thomas E. Richards   David H. B. Smith, Jr.   Donald Thompson		KEY RESPONSIBILITIES / AREAS OF OVERSIGHT
		The Board appoints an Executive Committee so that there will be a committee of the Board empowered to act for the Board, to the full extent permitted by law, between meetings of the Board if necessary and appropriate. In the event of a triggering event, the Executive Committee is also responsible for directing the execution of appropriate resolution and recovery plans.
The Executive Committee did not meet in 2020.

 

 

CORPORATE GOVERNANCE

Key Governance Practices

We believe that the high standards set by our governance structure provide the foundation for the strength of our business. An overview of certain key governance practices reflective of our strong governance profile is set forth below.

 

What We Do				What We Don’t Do
✓  Majority Independent Directors   ✓  Engaged Lead Director   ✓  Proxy Access Rights   ✓  Stockholder Right to Call Special Meetings   ✓  Frequent Executive Sessions for Independent Directors   ✓  Annual Strategic Planning Meeting with Board and Executive Officers   ✓  Regular Rotations of Committee Chairs   ✓  Regular Reviews of Governance Documents   ✓  Annual Board and Committee Self-Evaluations				✗   Plurality Voting in Uncontested Director Elections   ✗   Staggered Board   ✗   Poison Pill   ✗   Supermajority Voting Requirements   ✗   Overboarding of Directors

Director Independence

To be considered independent, the Board must affirmatively determine that a director has no relationship with the Corporation which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Corporation’s Corporate Governance Guidelines require that a majority of the directors serving on the Board meet the criteria for “independence” under NASDAQ listing standards.

In making independence determinations, the Board considers, among all other relevant matters, the criteria for independence contained in the NASDAQ listing standards. Under these standards, the following persons shall not be considered “independent”:

 

●

a director who is or was an employee or executive officer of the Corporation, or whose Family Member (as defined below) is or was an executive officer of the Corporation, at any time during the past three years;

 

●

a director who receives or has received, or whose Family Member receives or has received, compensation from the Corporation in excess of $120,000 during any period of twelve consecutive months within the past three years, other than director and committee fees, benefits under a tax-qualified retirement plan or other forms of nondiscretionary compensation; provided, however, that compensation received by a Family Member of a director for service as an employee (other than as an executive officer) of the Corporation need not be considered in determining independence;

 

●

a director who is, or whose Family Member is, a current partner of the Corporation’s outside auditor, or who was a partner or employee of the Corporation’s outside auditor who worked on the Corporation’s audit at any time during any of the past three years;

 

●

a director of the Corporation who is, or has a Family Member who is, employed as an executive officer of another entity where at any time during the past three years any of the executive officers of the Corporation serve on the compensation committee of such other entity; or

 

●

a director who is, or whose Family Member is, a partner in, a controlling stockholder of, or an executive officer of, any organization to which the Corporation made, or from which the Corporation received, payments for property or services in the current or any of the past three fiscal years that exceed the greater of $200,000 or 5% of the recipient’s consolidated gross revenue for that year, other than payments arising solely from investments in the Corporation’s securities or payments under nondiscretionary charitable contribution matching programs.

 

CORPORATE GOVERNANCE

 

“Family Member” means a person’s spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law, and anyone (other than domestic employees) who shares the person’s home.

The Board has determined that each director serving during 2020 was, and each current director is, independent of the Corporation in accordance with the Corporation’s Corporate Governance Guidelines and categorical standards, except for Mr. O’Grady, who currently serves as the Corporation’s Chairman, President and CEO.

In addition to the categorical standards, the Board considered that the Corporation or its subsidiaries provided financial services to each of its directors, or persons or entities affiliated with such directors, except for Mr. Tribbett, including trust and related services, brokerage services, investment management, asset servicing, asset management, credit services and other banking services. These transactions were undertaken in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral for loan transactions) as those prevailing at the time for comparable transactions with other persons not related to the Corporation or any affiliated entities involved in the transactions. None of these transactions involved more than the normal risk of collectability or presented other unfavorable features, and any extensions of credit to directors and executive officers of the Corporation were permitted under the provisions of Section 13(k) of the Securities Exchange Act of 1934 (the “Exchange Act”). None of these transactions or any transactions in which the Corporation or any of its subsidiaries sold or purchased products and services to or from any of the Corporation’s directors, or persons or entities affiliated with its directors, were material to the Corporation or any affiliated entities involved in the transactions. With respect to Mr. Henderson, the Board also considered the related party transaction reviewed and approved by the Audit Committee in accordance with the Corporation’s Related Person Transactions Policy described below. In each case, the Board determined that these relationships did not affect any director’s ability to exercise independent judgment in carrying out his or her responsibilities as a director.

Related Person Transactions Policy

The Board, through its Audit Committee, has adopted a written Related Person Transactions Policy to govern the review, approval, and ratification of any transaction, arrangement or relationship in which the Corporation or its subsidiaries are party, the amount involved exceeds $120,000, and in which any related persons have a direct or indirect material interest. “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 person (other than a tenant or employee) sharing their household.

Any related person proposing to enter into a potential related party transaction with the Corporation or its subsidiaries must notify the Corporate Secretary of the facts and circumstances of the proposed transaction. If the Corporate Secretary finds that the transaction would constitute a related party transaction, it must be reviewed and 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 will consider all relevant facts and circumstances and approve only those related person transactions that are in, or otherwise not inconsistent with, the best interests of the Corporation and its subsidiaries.

Kathleen Finley, Mr. Henderson’s daughter, has been employed by the Bank since 2005, currently serving as a Senior Vice President on the Wealth Management National Services team of the Bank. In such role, Ms. Finley earned compensation in excess of $120,000 in 2020, and received retirement, health and wellness benefits, all on comparable terms as those provided for other employees of the Bank. Pursuant to the Related Person Transactions Policy, our Audit Committee considers and approves Ms. Finley’s employment on an annual basis.

Executive Sessions

The independent directors of the Corporation met in executive sessions separate from management six times during 2020. The Lead Director or, in his absence, another independent director designated by the Lead Director, presides at executive sessions of the independent directors. The standing committees of the Board also regularly held executive sessions during 2020. These sessions were led by the respective independent committee Chairs.

 

CORPORATE GOVERNANCE

 

Board Evaluations

The Board and each of its standing committees thoroughly evaluate their own effectiveness throughout the year. The evaluation is a multi-faceted process that includes discussions with our Lead Director, individual director input on Board and committee meeting agenda topics, executive sessions without management present, periodic input to our Chairman and CEO and other members of senior management on agenda topics and enhancements to Board and committee effectiveness, and an annual formal self-evaluation overseen by the Corporate Governance Committee. A summary of the self-evaluation process is as follows.

 

Determine Format   Each year, the Committee formally considers and approves the process through which Board and committee self-evaluations are to be conducted to ensure they remain efficient and effective means by which to assess, and foster the continual enhancement of, the Board and its committees.

Conduct Evaluation   In recent years, the self-evaluation process has been led by the Lead Director, who conducts in-depth, one-on-one discussions with each of our directors guided by a list of thematic questions, including with respect to: ●  Board and committee performance ●  Board and committee composition and diversity ●  Management’s relationship with the Board ●  Corporate strategy ●  Corporate and Board culture ●  Board and committee priorities

Review Feedback   The Lead Director provides a summary of these discussions to the full Board for its consideration in executive session.   Each standing committee also meets in executive session to provide an opportunity to discuss the key takeaways from the evaluation process as they may apply to such committee’s effectiveness.

Implement Feedback   In response to feedback from the evaluation process, the Board and committees work with management to improve policies and practices to enhance Board and committee effectiveness.

 

As a result of this evaluation process, certain enhancements have been made in recent years to Board and committee practices and meeting materials to further their effectiveness. For example, the Board’s 2020 self-evaluation process identified the Board’s desire for additional discussion regarding certain information technology and digital strategy topics, as well as certain enhancements to Board and committee practices and meeting materials, all of which were implemented throughout 2020.

Board Leadership Structure

The current leadership structure of the Board consists of a combined Chairman and CEO position and a separate Lead Director who is appointed annually by the Corporation’s independent directors in accordance with the Corporation’s Corporate Governance Guidelines. The Board has determined that combining the positions of Chairman and CEO is the most appropriate for the Corporation at this time, as having one person serve as Chairman and CEO provides unified leadership and direction to the Corporation and strengthens the ability of the CEO to develop and implement strategic initiatives and respond effectively in crisis situations.

The Lead Director’s role with respect to the Corporation is a significant one, with primary responsibilities including the following:

 

●

approving Board meeting schedules and agendas to ensure that there is sufficient time for discussion of all Board agenda items and overseeing the information provided to the Board;

 

CORPORATE GOVERNANCE

 

●

calling at any time deemed necessary or advisable by the Lead Director a special meeting of the Board or a special executive session of the independent directors;

 

●

adding items to the agenda of any regular or special meeting of the Board deemed necessary or advisable by the Lead Director;

 

●

presiding at all meetings of the Board at which the Chairman is not present;

 

●

presiding at all regular and any special executive sessions of the independent directors;

 

●

serving as a liaison between the independent directors and the Chairman and CEO;

 

●

conducting, by means of an interview with each director, including the Chairman and CEO, the Board’s annual self-evaluation of its performance and then providing a summary report to the Board; and

 

●

being available for consultation and direct communication with major stockholders.

Taking into account the prominence of the Lead Director role at the Corporation, the Board has determined that the Corporation’s current Board leadership structure provides significant independent leadership of the Board and is most appropriate for the Corporation at this time. The Corporation has a strong independent Board, with all current directors except for Mr. O’Grady having been determined to be independent under NASDAQ listing standards and all standing committees of the Board except for the Executive Committee being composed solely of independent directors. The significant and meaningful responsibilities of the Corporation’s independent directors, together with those of the Lead Director, also foster good governance practices and provide for substantial independent oversight of critical matters related to the Corporation.

Risk Oversight

General

The Board provides oversight of risk management directly as well as through its Audit, Business Risk, Capital Governance and Compensation and Benefits Committees. The Board approves the Corporation’s risk management framework and Corporate Risk Appetite Statement, which reflects the expectation that risk be consciously considered as part of the Corporation’s strategic decisions and in its day-to-day activities. The Corporation actively monitors employees using programs, policies, and other tools that are designed to ensure that they work within established risk frameworks and limits. The Business Risk Committee assumes primary responsibility and oversight with respect to credit risk, market and liquidity risk, fiduciary risk, operational risk, compliance risk and strategic risk. The Audit Committee provides oversight with respect to financial reporting and legal risk, while the Compensation and Benefits Committee oversees the development and operation of the incentive compensation program of the Corporation and its subsidiaries. The Compensation and Benefits Committee annually reviews management’s assessment of the effectiveness of the design and performance of the incentive compensation arrangements and practices in providing incentives that are consistent with the safety and soundness of the Corporation and its subsidiaries. This assessment includes an evaluation of whether these incentive compensation arrangements and practices discourage inappropriate risk-taking behavior by participants. Pursuant to its charter, the Compensation and Benefits Committee is required to have at least one member who is a member of the Business Risk Committee and at least one member who is a member of the Audit Committee. Among other responsibilities, the Capital Governance Committee oversees the processes and activities of the Corporation and its subsidiaries related to resolution planning and capital adequacy assessments, forecasting and stress testing, including the annual CCAR exercise, and challenges management, as appropriate, on various elements of such processes and activities. Accordingly, the Capital Governance Committee provides oversight with respect to the linkage of the Corporation’s material risks to the capital adequacy assessment and resolution planning processes. The charters for the Audit, Business Risk, Capital Governance and Compensation and Benefits Committees provide that the Committees may meet with the individuals who supervise day-to-day risk management responsibilities of the Corporation and other members of management, consultants or advisors, as each committee deems appropriate.

Information Security and Technology Risk Oversight

As a financial services company entrusted with the safeguarding of sensitive information, the Board believes that a strong information security and technology risk management program is crucial to the Corporation’s success in an environment of increasing cyber threats. Accordingly, the Board and the Business Risk Committee play meaningful roles with respect to the oversight of information security and technology risk management at the Corporation. Specifically, in conjunction with its oversight of overall operational risk, the Business Risk Committee oversees management’s actions to

 

CORPORATE GOVERNANCE

 

identify, assess, mitigate and remediate material issues related to information security and technology risk; annually reviews and approves the Corporation’s information security and technology risk management policy and program; and receives regular updates from management, including the Chief Information Risk Officer, on the Corporation’s information security and technology risk management program and cyber risk profile. On January 19, 2021, the Business Risk Committee established the Cybersecurity Risk Oversight Subcommittee to provide for an even deeper focus on, and governance framework around, cybersecurity risks inherent in the Corporation’s business. The Board also plays a role with respect to the oversight of such risks, meeting periodically with management and third-party experts to discuss its role in crisis management and to review tabletop exercises designed to evaluate the Corporation’s cybersecurity program.

For a further description of the risk management policies and practices of the Corporation’s management, including those related to information security and technology risk, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020.

Corporate Governance Guidelines

The Corporation has had Corporate Governance Guidelines in place since 2000. The Corporate Governance Committee reviews and reassesses the adequacy of the Corporate Governance Guidelines at least annually and recommends any changes to the Board for approval. The Corporation’s Corporate Governance Guidelines embody many of the Corporation’s long-standing practices and incorporate 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.

Code of Business Conduct and Ethics

The Board of the Corporation has adopted a Code of Business Conduct and Ethics to:

 

●

promote honest and ethical conduct, including fair dealing and the ethical handling of actual or apparent conflicts of interest;

 

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promote full, fair, accurate, timely and understandable public disclosure about the Corporation;

 

●

promote compliance with applicable laws and governmental rules, codes and regulations wherever the Corporation does business;

 

●

ensure the protection of the Corporation’s legitimate business interests; and

 

●

deter wrongdoing.

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

Management Development and Succession Planning

The Board is responsible for succession planning for the position of CEO. The Board, led by the Compensation and Benefits Committee, annually conducts a formal management development and succession planning review with respect to the position of the CEO and other senior officers. This review focuses on CEO succession planning, as well as developing internal candidates for advancement within the Corporation. The Compensation and Benefits Committee makes recommendations to the Board concerning management development and succession planning. These recommendations reflect the Board’s annual management development and succession planning review, as well as Committee discussions with and without the CEO. The Corporate Governance Committee discusses succession planning in the event of the unexpected death, incapacity, or resignation of the CEO and recommends to the Board, after consultation with the Chairman of the Compensation and Benefits Committee, an appropriate successor under such circumstances.

Director Nominations and Qualifications and Proxy Access

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

 

CORPORATE GOVERNANCE

 

specified in the Corporation’s By-laws and described further under “Stockholder Proposals for 2022 Annual Meeting” on page 68. Stockholders also may recommend candidates for director by following the procedures for communicating with directors described below under “Communications with the Board and Independent Directors.”

In its evaluation of director candidates, including persons recommended by stockholders, the Corporate Governance Committee considers the factors specified in the Corporation’s Corporate Governance Guidelines to ensure the Board has a diversity of perspectives and backgrounds, 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, ethnicity, gender identity and other forms of diversity represented on the Board when assessing candidates. The Committee seeks to identify as candidates for director persons 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 ensure the Board has the necessary collective expertise to perform its oversight function effectively. Following its evaluation process, the Committee recommends director nominees to the full Board, and the Board makes the final determination of director nominees based on its consideration of the Committee’s recommendation.

The Corporation’s By-laws also include a proxy access right, providing eligible stockholders the right to include, along with the candidates nominated by the Board, their own nominees for election to the Board in the Corporation’s proxy materials. This proxy access right permits any stockholder, or group of up to 20 stockholders, who has maintained continuous qualifying ownership of 3% or more of the Corporation’s outstanding common stock for at least the previous three years, and continues to own the required common stock through the date of the applicable annual meeting, to include in the Corporation’s proxy materials such stockholder’s own nominees for election to the Board constituting up to the greater of two individuals or 20% of the total number of directors, provided that such stockholder and its nominees satisfy the requirements specified in the Corporation’s By-laws.

Stockholder Engagement

The Corporation recognizes the importance of engaging with stockholders and other key constituents. Open and constructive dialogue with stockholders helps further their understanding of our performance and strategies and allows us to receive direct feedback on issues relating to the Corporation. Accordingly, it is the Corporation’s long-standing practice to engage proactively and routinely with stockholders throughout the year. This practice continued in 2020, with our CEO, CFO or other members of senior management engaging with stockholders representing approximately 40% of our outstanding shares regarding matters pertaining to the Corporation’s performance, strategies and governance.

Corporate Social Responsibility

Corporate social responsibility is an essential element of our culture that aligns with the enduring principles of service, expertise and integrity that have shaped Northern Trust since the time of its founding. We place great importance on understanding the broader societal and environmental impacts of our business and on remaining socially accountable to our key stakeholders, including clients, employees, communities, and stockholders.

Our vision for corporate social responsibility is embedded at all levels of our organization. Our Board, and in particular its Corporate Governance Committee, engages in active oversight of our corporate social responsibility strategies, programs and principles. Further reflecting the importance of these matters, our Head of Corporate Social Responsibility and Global Diversity, Equity and Inclusion reports directly to our Chairman, President and CEO and is supported by a broader Executive Corporate Social Responsibility Council comprised of senior leaders within our organization.

For more information regarding our corporate social responsibility activities—including our focus on diversity, equity, and inclusion; community engagement; environmental impact; and sustainable investing—see “Helpful Resources—Corporate Social Responsibility” on page 75.

Communications with the Board and Independent Directors

Stockholders and other interested persons may communicate with any of the Corporation’s directors, including the Lead Director or the independent directors as a group, by writing a letter addressed to the applicable director(s), c/o Northern

 

CORPORATE GOVERNANCE

 

Trust Corporation, 50 South La Salle Street, B-3, Chicago, Illinois 60603, Attention: Corporate Secretary. 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 may communicate those concerns to the Audit Committee or its Chairman using the address indicated above. The Corporation’s Corporate Secretary will review and forward communications to the appropriate member or members of the Board. The Corporate Secretary need not forward or retain any communications determined to be mass mailings, routine solicitations for business or contributions, or communications determined not to be relevant to the performance of the duties of the Board.

Securities Transactions Policy and Policy Against Hedging

Our Securities Transactions Policy prohibits directors, employees, including our named executive officers, and certain of their family members from purchasing or selling any type of security, whether issued by us or another company, while such persons are aware of material nonpublic information relating to the issuer of the security and from providing such material nonpublic information to any person who may trade while aware of such information. This policy also prohibits directors, employees, and certain of their family members from (i) engaging in short selling, margining, pledging or hypothecating the Corporation’s securities; (ii) trading in options, warrants, puts, calls or similar instruments on the Corporation’s securities; and (iii) engaging in any other transaction that hedges or offsets, or is designed to hedge or offset, any decrease in the market value of a Northern Trust equity security.

 

ITEM 2—ADVISORY VOTE ON EXECUTIVE COMPENSATION

Pursuant to Section 14A of the Exchange Act, and the rules and regulations promulgated thereunder by the SEC, the Corporation is required to include in this Proxy Statement a separate resolution, subject to an advisory vote, to approve the compensation of our named executive officers as disclosed in this Proxy Statement (commonly referred to as a “Say-on-Pay” advisory vote). In a nonbinding, advisory vote on the frequency of Say-on-Pay votes held at our 2017 Annual Meeting of Stockholders, stockholders voted in favor of conducting Say-on-Pay votes annually. In light of this result, and other factors considered by the Board, the Corporation will continue to hold Say-on-Pay votes on an annual basis. Accordingly, the Board is requesting that stockholders vote FOR approval of the following resolution:

“Resolved, that the compensation paid to the Corporation’s named executive officers, as disclosed in its Proxy Statement dated March 9, 2021, pursuant to Item 402 of Regulation S-K of the Exchange Act, including the Compensation Discussion and Analysis, compensation tables, and narrative discussion, is hereby APPROVED.”

As an advisory vote, this proposal is not binding on the Corporation. Although the vote is nonbinding, the Board and the Compensation and Benefits Committee value the opinions of our stockholders and, consistent with past practice, will consider the outcome of the vote when determining compensation policies and making future compensation decisions for our named executive officers.

The Corporation’s executive compensation program and the framework used in evaluating and making 2020 compensation decisions for our named executive officers are described in the Compensation Discussion and Analysis that begins on page 29 of this Proxy Statement.

 

		The Board unanimously recommends that you vote FOR this proposal.

 

COMPENSATION DISCUSSION AND ANALYSIS

Our Named Executive Officers

This Compensation Discussion and Analysis describes how we compensate our executives, including our 2020 named executive officers, which consist of the following individuals.

 

Name		Title
Michael G. O’Grady		Chairman, President and Chief Executive Officer
Jason J. Tyler		Chief Financial Officer
Peter B. Cherecwich		President—Corporate & Institutional Services
Steven L. Fradkin		President—Wealth Management
Shundrawn A. Thomas		President—Asset Management

Executive Summary

COVID-19 Response

The COVID-19 pandemic presented health and economic challenges on an unprecedented scale in 2020. During this time, Northern Trust focused on the health and well-being of its workforce, meeting its clients’ needs and supporting its communities.

Workforce

In 2020, Northern Trust implemented its global business resiliency plan, with the vast majority of staff working remotely throughout the year. To ensure the health and well-being of those members of our workforce for whom it was essential to work from one of our locations, as well as our clients and other visitors, several social distancing elements and other protective measures were implemented, such as temperature screenings, where allowable by law, distribution of personal protective equipment, and workforce health self-certifications. Although planning is underway to return to the office on a location-by-location basis when conditions permit, the vast majority of staff is expected to continue to work remotely for some time to come.

Client Service

During the second quarter of 2020, Northern Trust became a lender under the PPP, administered by the SBA and intended to aid small businesses during the COVID-19 pandemic. Throughout 2020, Northern Trust originated more than 1,100 loans, with an aggregate original principal amount exceeding $220.0 million, under the PPP. In addition to lending under the PPP, Northern Trust elected to apply certain forms of relief to borrowers in response to the COVID-19 pandemic, including loan modifications and payment deferrals.

Community Support

In 2020, Northern Trust provided $2.5 million in COVID-19 relief support to numerous organizations serving those most affected by the pandemic. Northern Trust also provided $110.5 million in low-cost funding to assist CDFIs, which are instrumental in providing loans to small businesses and non-profit organizations under the PPP, throughout the year. The funding helps meet urgent demand among small businesses and non-profit groups by providing flexible terms and low rates. CDFIs provide loans, investments, financial services and technical assistance to underserved populations and communities. This funding was separate and distinct from the more than $220.0 million of loans made under the PPP.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

2020 Financial Performance Highlights

While our financial performance during 2020 was impacted by low interest rates and unprecedented challenges related to the COVID-19 pandemic, the three pillars of our financial strategy remained unchanged:

 

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Achieving Growth across the business, as demonstrated by continued growth in revenue and trust, investment and other servicing fees despite a substantial decline in net interest income and increased money market mutual fund fee waivers, each related to the current low-interest-rate environment.

 

 

 

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Driving Productivity and Profitability, as demonstrated by our noninterest expense as a percentage of our trust, investment and other servicing fees remaining below the mid-point of levels reported in the most recent five years. Nevertheless, an increased provision for credit losses driven by current and projected economic conditions and downgrades in our loan portfolio resulting from the ongoing pandemic, as well as a substantial decline in net interest income and increased money market mutual fund fee waivers related to the low-interest-rate environment experienced in 2020, drove decreases in pre-tax margin, net income and earnings per share levels relative to recent years. We remain focused on continuing to improve our productivity and profitability, including through expense management initiatives and ongoing efforts to further embed a culture of sustainable expense management across the organization.

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

 

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Generating Strong and Sustainable Stockholder Returns, as demonstrated by our ROE remaining within our target range of 10 – 15%, and the consistency of our quarterly dividends to the holders of our common stock.

 

We achieved these financial results while continuing to support our clients’ liquidity needs and maintaining strong capital ratios, with all ratios exceeding those required for classification as “well capitalized” under federal bank regulatory capital requirements.

Key Strategic Achievements

Execution on our strategies also was demonstrated through various strategic achievements, including:

 

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The continued success of our Wealth Management business’s holistic approach to addressing unique client needs, and its differentiated service capabilities, including The Northern Trust Institute, which harnesses experience developed from advising generations of wealthy families to provide data-driven insights and guide our clients in achieving optimal wealth outcomes for their personal circumstances.

 

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Our Asset Management business’s continued expansion of product and service offerings in the areas of greatest demand, including the launch of a new proprietary ESG scoring methodology that enables the integration of sustainability into investment portfolios in a more transparent and focused manner.

 

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Continued expansion of the C&IS business’s product and service capabilities, including advanced currency management and outsourced front-office trading solutions.

 

●

Our continued commitment to the communities in which we operate, with the launch of a new, highly focused philanthropic strategy that concentrates our volunteerism and contributions on four key areas of fundamental impact – educational excellence, food security, accessible healthcare and affordable housing – and our pledge of $20 million over the next five years with the goal of reducing the economic opportunity gap to facilitate the long-term financial success of those who face unfair hurdles because of their race, ethnicity, gender, geography or socio-economic conditions.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

●

The successful completion of our “Value for Spend” expense management initiative, announced in October 2017 with the goal of realizing $250 million of expense run-rate savings by 2020, and ongoing efforts to further embed a culture of sustainable expense management across the organization.

2020 Compensation Outcomes

Based upon its review of our corporate performance, as described above, and the individual performance of each named executive officer, discussed in this Compensation Discussion and Analysis, the Compensation and Benefits Committee approved the compensation amounts outlined in the table below. This table provides a comprehensive summary of each named executive officer’s total direct compensation for the 2020 and 2019 performance years. This perspective may be useful in reviewing key incentive compensation decisions, as this is how the Committee considers performance and pay, with incentive compensation generally reflective of prior year’s performance. It should be noted that the table below is not intended to be a substitute for the Summary Compensation Table on page 50, as certain amounts in the table below are different than the amounts in the Summary Compensation Table. The most significant difference is that this table reflects long-term incentive awards granted in February 2021 and February 2020 for the 2020 and 2019 performance years, respectively, while the Summary Compensation Table provides the value of the equity awards for the year in which they were granted.

 

														Long-Term Incentives
Executive		Year				Salary (1)				Short-Term Annual Cash Incentive				Performance Stock Units				Restricted Stock Units				Total Incentive Compensation (2)				Total
Michael G. O’Grady Chairman, President and Chief Executive Officer			2020			$	950,000			$	1,175,000			$	4,436,250			$	2,388,750			$	8,000,000			$	8,950,000
			2019				950,000				2,075,000				4,436,250				2,388,750				8,900,000				9,850,000
Jason J. Tyler(3) Chief Financial Officer			2020				500,000				650,000				1,137,500				612,500				2,400,000				2,900,000
			2019				—				—				—				—				—				—
Peter B. Cherecwich President—Corporate & Institutional Services			2020				625,000				900,000				1,592,500				857,500				3,350,000				3,975,000
			2019				625,000				1,050,000				1,592,500				857,500				3,500,000				4,125,000
Steven L. Fradkin President—Wealth Management			2020				625,000				950,000				1,690,000				910,000				3,550,000				4,175,000
			2019				625,000				1,110,000				1,683,500				906,500				3,700,000				4,325,000
Shundrawn A. Thomas(3) President—Asset Management			2020				625,000				900,000				1,592,500				857,500				3,350,000				3,975,000
			2019				—				—				—				—				—				—

 

(1) Represents the applicable named executive officer’s salary, as of February 2020 and 2019, respectively.

(2) Represents the total cash and equity incentive awards received by the applicable named executive officer in February 2021 for the 2020 performance year and February 2020 for the 2019 performance year, respectively.

(3) Messrs. Thomas and Tyler were not named executive officers in 2019, therefore, their 2019 total direct compensation is not provided.

The decrease in Mr. O’Grady’s total incentive compensation reflects the Corporation’s 2020 financial performance, which was adversely impacted by low interest rates and unprecedented challenges related to the COVID-19 pandemic. Incentives awarded to each of the other named executive officers in February 2021 are also reflective of such 2020 performance. Further information with respect to the performance factors impacting each named executive officer’s compensation for 2020 can be found under “2020 Individual Performance Considerations” beginning on page 40.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Consistent with our pay for performance philosophy, the pay mix for our CEO and each of our other named executive officers heavily emphasizes incentive compensation. Our long-term incentive mix further emphasizes performance-based pay, with 65% of the long-term incentives being awarded in performance stock units earned based on performance over a three-year period, and 35% being awarded in restricted stock units which vest ratably over a four year period.

 

Compensation Governance Practices

We have implemented the compensation practices summarized below to ensure that our compensation program is effective in addressing stockholder objectives.

 

What We Do		What We Don’t Do
✓   Closely align pay and performance, with the Compensation and Benefits Committee validating this alignment annually   ✓   Ensure performance-based compensation comprises the most significant portion of incentive compensation, with 65% of long-term incentives being awarded in performance stock units based on performance over a three-year period   ✓   Subject short- and long-term incentive awards to potential forfeiture or clawback in the event of misconduct resulting in a restatement of our financial statements and certain other types of misconduct   ✓   Ensure our executives meet robust stock ownership guidelines, including holding requirements for any executive below the stock ownership guidelines   ✓   Use an independent compensation consultant to advise the Compensation and Benefits Committee   ✓   Ensure overlapping membership between the Compensation and Benefits Committee and our Audit and Business Risk Committees		✗  Excise tax gross-ups for executive change in control arrangements   ✗  Single-trigger change in control benefits   ✗  Short selling, margining, hedging, pledging or hypothecating company shares permitted under our Securities Transactions Policy and Procedures   ✗  Compensation plans that encourage excessive risk-taking   ✗  Excessive perquisites   ✗  Repricing of underwater options   ✗  Dividend equivalents distributed on unvested performance or restricted stock unit awards

 

COMPENSATION DISCUSSION AND ANALYSIS

 

2020 Advisory Vote on Executive Compensation

 

Our 2019 named executive officer compensation was approved on an advisory basis by our stockholders at our 2020 Annual Meeting of Stockholders. Approximately 97% of the votes present and entitled to vote at the meeting, including abstentions, supported approval of 2019 named executive officer compensation. Although such advisory votes are nonbinding, the Board reviews and thoughtfully considers the voting results when determining compensation policies and making future compensation decisions for named executive officers. Additionally, as mentioned under “Stockholder Engagement” beginning on page 26 of this Proxy Statement, it is our practice to engage proactively and routinely with stockholders throughout the year to help further their understanding of our performance and strategies and to allow us to receive direct feedback on issues relating to the Corporation. The decisions made by the Board and the Compensation and Benefits Committee with respect to compensation for 2020 reflect the Board and the Committee’s belief, based on the results of the advisory vote on 2019 named executive officer compensation and our ongoing dialogue with stockholders, that our stockholders generally support our overall executive compensation program.

Guiding Principles for Executive Compensation

Our compensation philosophy enables us to attract, reward and retain talent at all levels who will contribute to our long-term success. With the goals of strong long-term financial performance and creating long-term stockholder value, our executive compensation program and compensation decisions are framed by the four guiding principles described below.

 

Guiding Principle		Impact on Compensation Design
Linked to Long-Term Performance		●  Performance stock units, which constitute 65% of long-term incentive compensation, are based on achievement of three-year absolute ROE targets and, beginning with awards granted on February 18, 2020, our three-year relative ROE compared to that of our performance peer group.
Aligned with Stockholder Interests		●  Majority of pay is delivered in long-term incentives (approximately 76% of 2020 total direct compensation for Mr. O’Grady).   ●  Executives are subject to robust stock ownership guidelines.
Positioned Competitively in the Marketplace		●  Compensation levels are developed with reference to similar roles at a peer group of comparable companies.
Discourages Inappropriate Risk-Taking		●  Short- and long-term incentives are subject to potential forfeiture or clawback in the event of misconduct resulting in a restatement of our financial statements and certain other types of misconduct, including inappropriate risk-taking resulting in “significant risk outcomes.”   ●  Short-term cash incentive compensation awards and performance stock unit payouts are capped.   ●  Compensation and Benefits Committee can exercise negative discretion to reduce incentive compensation.   ●  Compensation program balances short-term and long-term performance objectives.

Risk Management

A key objective of our compensation program is to ensure that the incentive compensation design does not encourage inappropriate risk-taking. We have considered our incentive compensation program in light of the guidance provided by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) with respect to sound incentive compensation policies at financial institutions. We believe our compensation arrangements are consistent with our safety and soundness and appropriately aligned with our overall risk profile.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

To reinforce the important role of effective risk management in our compensation framework, 65% of long-term incentive awards to named executive officers for 2020 performance were provided in performance stock units. Performance stock units, which contain meaningful performance targets for named executive officers and are payable in shares if those targets are attained, discourage inappropriate risk-taking behavior because they can only be earned by attaining long-term performance goals and because the value of the award is less susceptible than stock options to short-term fluctuations in share value. All long-term incentive awards vest over a multi-year period and have an inherent risk adjustment factor based on changes in the value of our common stock. Both short-term and long-term incentive compensation arrangements for named executive officers are subject to certain forfeiture and recoupment provisions. Further information with respect to these forfeiture and recoupment provisions for our named executive officers can be found under “Other Compensation Practices—Forfeiture and Recoupment.”

The Compensation and Benefits Committee annually reviews management’s assessment of the effectiveness of the design and performance of our incentive compensation arrangements and practices in providing risk-taking incentives that are consistent with the safety and soundness of the Corporation and its subsidiaries. This assessment includes an evaluation of whether our incentive compensation arrangements and practices discourage inappropriate risk-taking behavior by participants. In connection with the Committee’s assessment, the Corporation’s Chief Risk Officer presents an annual incentive compensation risk performance review, discussing his observations and assessments of risk performance for the Corporation and each of its significant businesses. The Committee will continue to monitor and, if necessary, revise our incentive compensation program to ensure that it continues to balance appropriately the objectives of stockholders, the needs of the business and risk concerns.

Pursuant to its charter, the Compensation and Benefits Committee is required to have at least one member who is a member of the Business Risk Committee and at least one member who is a member of the Audit Committee. This overlap in composition is intended to ensure that compensation decisions reflect the input of the Audit and Business Risk Committees.

 

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Executive Compensation Program Elements

The table below provides a brief description of the elements of our 2020 compensation program and how each element helps address our guiding principles for executive compensation.

 

Element		Link to Compensation Philosophy		Rationale/Key Features
Base Salary		●  Targeted at competitive levels among compensation peer group companies.		●  Base salaries provide a fixed level of income consistent with a named executive officer’s position and responsibilities, competitive pay practices and internal equity principles.
Incentive Compensation		●  Total incentive funding for the Corporation is established as a percentage of pre-tax income.   ●  Individual awards are targeted at competitive levels among compensation peer group companies, with actual awards varying to reflect both company and individual performance.   ●  Allocated in a mix that is predominantly equity-based (at least 75% for the CEO and 70% for other named executive officers).		●  The Compensation and Benefits Committee determines incentive awards based on a holistic assessment of corporate, business unit and individual performance along with consideration of internal equity and external market data.
Annual Cash Incentive		●  Provides cash award to reward prior-year performance.		●  Represents no more than 25% of incentive compensation for the CEO and 30% of incentive compensation for other named executive officers.
Performance Stock Units		●  Provides deferred incentive compensation subject to future long-term performance outcomes.   ●  Aligned with stockholders’ interests by motivating executive officers to act as owners.		●  Comprises 65% of equity compensation.   ●  The number of shares that will vest will be determined based on three-year average annual absolute and relative ROE performance.
Restricted Stock Units		●  Provides deferred incentive compensation subject to time-based vesting requirements.   ●  Aligned with stockholders’ interests by motivating executive officers to act as owners and provides enhanced retention.		●  Comprises 35% of equity compensation.   ●  Vests ratably over four years.
Retirement, Health and Welfare Benefits		●  Targeted at competitive levels among peer group companies.		●  Benefits are designed with broader employee populations in mind and are not specifically structured for executive officers.

Additional information with respect to each of the principal elements of our compensation program can be found beginning on page 38.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Award Determination Process

Role of the Board of Directors

The full Board of Directors sets the compensation of our Chairman and CEO. In determining the appropriate level of compensation for the Chairman and CEO, the Board gives substantial weight to the recommendation of the Compensation and Benefits Committee, but retains ultimate oversight and responsibility for such compensation decisions.

Role of the Compensation and Benefits Committee

During its February meeting each year, the Compensation and Benefits Committee discusses and determines the appropriate level of compensation for all executive officers. The Committee considers all elements of our executive compensation program holistically rather than each compensation element individually, and makes executive compensation decisions after careful review and analysis of financial and nonfinancial performance information, as well as historical and external market compensation data.

The Committee has the discretion to determine compensation in the context of individual performance in nonfinancial areas that are important to long-term growth and the enhancement of stockholder value. This flexibility allows the Committee to modify individual incentive payouts and long-term incentive awards to reflect:

 

●

our business model and strategy;

 

●

prevailing market trends;

 

●

evolution in the financial and regulatory environment; and

 

●

risk management objectives.

As discussed under “2020 Individual Performance Considerations” beginning on page 40 of this Proxy Statement, in considering the compensation for the Chairman and CEO, the Committee also evaluates his performance against established objectives for the year to which such compensation relates. The Committee shares this evaluation with the Board in order for the Board to set the Chairman and CEO’s compensation.

Role of the Chairman and CEO

The Chairman and CEO presents the Compensation and Benefits Committee with recommendations on the total compensation for each of our other executive officers. These recommendations reflect performance against the past year’s performance expectations, a mix of financial and nonfinancial performance factors, which are not formulaically weighted or scored, and external market data. These recommendations also reflect each of the other executive officer’s performance with regard to business risks and individual adherence to risk and compliance policies and procedures. The Committee gives substantial weight to the recommendations of the Chairman and CEO, but retains the ultimate oversight and responsibility to set compensation for all executive officers, except for the Chairman and CEO, whose compensation is set by the Board with consideration given to the recommendations of the Committee.

Role of Human Resources

The Human Resources function provides materials to assist the Compensation and Benefits Committee in making executive compensation decisions, including current and historical compensation data for executive officers. Our Chief Human Resources Officer attends and participates in all Committee meetings. The Human Resources function also assists the Chairman and CEO in formulating his compensation recommendations for all other executive officers.

Role of the Compensation and Benefits Committee’s Independent Compensation Consultant

The Compensation and Benefits Committee has retained Meridian Compensation Partners, LLC (“Meridian”), a nationally recognized executive compensation consulting firm, as its independent compensation consultant. The Committee confers with its independent compensation consultant to ensure that decisions and actions are consistent with stockholders’ long-term interests and compensation-related best practices within the financial services industry. The Committee also references market data provided by its independent compensation consultant when considering compensation for executive officers. At least one representative of the Committee’s independent compensation consultant attended all meetings of the

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Committee during 2020. The Committee’s independent compensation consultant provides insights into compensation trends and market practices, presents views on the compensation proposed by the Committee and participates in Committee meeting discussions and executive sessions. The Corporation does not engage the Committee’s independent compensation consultant for additional services outside of providing executive compensation consulting to the Committee. The Committee conducted assessments of potential conflicts of interest and independence issues with respect to Meridian pursuant to applicable SEC rules and NASDAQ listing standards and no such conflicts or issues were identified.

Use of Compensation Peer Group and Market Data

To help to inform its decision-making, the Compensation and Benefits Committee reviews peer group data regarding competitive pay levels and overall compensation program design in the market place. The peer group utilized by the Committee for setting compensation has historically consisted of the Corporation’s two most comparable trust and custody peers—The Bank of New York Mellon Corporation and State Street Corporation—as well as certain other banking, wealth management and asset management firms similar to the Corporation in certain respects, but not necessarily representing direct business competitors. The peer group utilized by the Committee in considering overall compensation plan design consists of a broader set of financial services firms with which the Corporation competes for business and talent.

The peer group reflected below was used to assess competitive compensation when developing base salary decisions and determining the size of short-term annual cash incentive awards and long-term incentive grants made in 2020 and 2021 based on the 2019 and 2020 performance years, respectively.

 

Compensation Peer Group
● BlackRock, Inc.		● Truist Financial Corporation
● Fifth Third Bancorp		● T. Rowe Price Group, Inc.
● First Republic Bank		● The Bank  of New York Mellon Corporation
● Franklin Resources, Inc.		● The Charles Schwab Corporation
● KeyCorp		● The PNC Financial Services Group, Inc.
● M&T Bank Corporation		● U.S. Bancorp
● State Street Corporation

When making compensation decisions, the Compensation and Benefits Committee considers how the recommended compensation levels will compare to the median compensation for comparable positions among the peer group companies. The Committee also considers market data for comparable positions reported in certain financial services industry surveys. However, the Committee recognizes that the compensation levels may vary from market median compensation levels based on our performance or specific individual circumstances, including the executive’s tenure in the role, the nature of the responsibilities of the executive and the executive’s individual performance.

2020 Compensation Design and Decisions

Base Salary

The Compensation and Benefits Committee believes that base salaries should provide a fixed level of annual income consistent with an executive officer’s position and responsibilities, competitive pay practices and internal equity among executive officers.

The Committee uses discretion in determining base salaries, considering the following factors:

 

●

targeted base salary levels that balance market pay practices with internal equity principles;

 

●

experience and qualifications of the individual executive;

 

●

the executive officer’s tenure in the position or a position of similar level;

 

●

significant changes in assignment or scope of responsibility; and

 

●

individual performance over the prior year relative to established goals and expectations for the position.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

For new and recently promoted executives, the Committee’s approach is to increase base salary incrementally to the appropriate target pay level as the executive officer gains experience and tenure in the new position.

Effective January 1, 2020, Mr. Tyler’s base salary increased to $500,000 in conjunction with his appointment as CFO. No other action was taken in 2020 to increase the base salary of any other named executive officer.

Incentive Compensation

Annual incentive compensation provides an opportunity for our executive officers to receive awards based on our financial performance, as well as each executive officer’s individual performance. We use a total incentive approach that provides cash and equity incentives based on prior-year performance with the total annual incentive pool funded based on a targeted percentage of pre-tax income. The Committee believes that its structured use of discretion in determining incentives for the named executive officers is appropriate as it allows the Committee to assess performance holistically across multiple dimensions of performance; provides for a year-end assessment of the operating environment and how well we performed relative to our direct peers; and ensures that the Committee has the ability to adjust incentives for how results were achieved (e.g., degree of risk taken, sustainability of results). The Committee also considers market data, each executive’s performance, each executive’s potential for future contributions to the organization and internal equity principles.

The Committee also determines the mix of incentive compensation awarded as a combination of cash and deferred equity awards. The Committee has established that a minimum of 75% of the CEO’s incentive, and 70% of incentives for the other named executive officers, will be granted through long-term (i.e., equity) incentive awards of which 65% is granted as performance stock units and the remaining 35% is granted as restricted stock units.

Additionally, pursuant to the terms of the Corporation’s Management Performance Plan, under which the annual cash incentive awards to our named executive officers are made, the amount of the annual cash incentive is limited based on a percentage of the consolidated net income generated by us in the applicable year. The annual cash incentive maximums for our named executive officers are as follows:

 

●

annual cash incentives for the Chairman and the CEO may not exceed 0.6% of consolidated net income;

 

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annual cash incentives for the President (if not serving as CEO) and Chief Operating Officer may not exceed 0.4% of consolidated net income;

 

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annual cash incentives for the other named executive officers may not exceed 0.3% of consolidated net income; and

 

●

no annual incentives can be paid in the absence of positive net income.

The final determination of individual annual incentives (both cash and equity) is not tied to any specific formula, rather the process that the Compensation and Benefits Committee uses to determine incentives relies on an assessment of quantitative and qualitative performance criteria for Northern Trust as a whole, specific businesses and individual executive officers.

The Committee held multiple discussions in January and February 2021 to discuss company and individual performance. In determining incentives in February 2021, the Committee gave consideration to our overall performance, the individual executive officer’s performance, internal equity principles and peer group compensation levels. Factors considered when assessing performance included:

 

●

Our overall financial performance, with a focus on key metrics, including:

 

¡

Pre-tax income relative to plan and prior year; and

 

¡

ROE.

 

●

The performance of individual businesses in the following areas:

 

¡

Growth (fees and revenue);

 

¡

Productivity (expense management and ratio of noninterest expense to trust, investment and other servicing fees);

 

¡

Profitability (pre-tax margin and ROE); and

 

¡

Risk management, including operational resiliency.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Based on the performance considerations discussed in the executive summary of this Compensation Discussion and Analysis and under “2020 Individual Performance Considerations” below, in February 2021, the Committee awarded the named executive officers the incentive compensation amounts outlined in the table below.

 

		Long-Term Incentives
Executive		Year				Short-Term Annual Cash Incentive				Performance Stock Units				Restricted Stock Units				Total Incentive Compensation
Michael G. O’Grady Chairman, President and Chief Executive Officer			2020			$	1,175,000			$	4,436,250			$	2,388,750			$	8,000,000
			2019				2,075,000				4,436,250				2,388,750				8,900,000
Jason J. Tyler(1) Chief Financial Officer			2020				650,000				1,137,500				612,500				2,400,000
			2019				—				—				—				—
Peter B. Cherecwich President—Corporate & Institutional Services			2020				900,000				1,592,500				857,500				3,350,000
			2019				1,050,000				1,592,500				857,500				3,500,000
Steven L. Fradkin President—Wealth Management			2020				950,000				1,690,000				910,000				3,550,000
			2019				1,110,000				1,683,500				906,500				3,700,000
Shundrawn A. Thomas(1) President—Asset Management			2020				900,000				1,592,500				857,500				3,350,000
			2019				—				—				—				—

 

(1) Messrs. Thomas and Tyler were not named executive officers in 2019, therefore, their 2019 total direct compensation is not provided.

2020 Individual Performance Considerations

In determining total compensation for the named executive officers, the Compensation and Benefits Committee considered the Corporation’s 2020 financial performance, the performance of the Corporation’s leadership team as a whole, and how well each officer performed in his role. Further detail with respect to performance factors for each of the named executive officers is set forth on the following pages.