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 26, 2022 (the “Annual Meeting”). You should read the entire Proxy Statement carefully before voting. On or about March 17, 2022, 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, 2021, 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				8
Item 2 – Advisory Vote on Executive Compensation			FOR				29
Item 3 – Ratification of the Independent Registered Public Accounting Firm			FOR				67

 

Description of Business

Northern Trust is a leading provider of wealth management, asset servicing, asset management and banking solutions to corporations, institutions, families and individuals. Founded in Chicago in 1889, Northern Trust has a global presence with offices in 23 U.S. states and Washington, D.C., and across 23 locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of December 31, 2021, Northern Trust had assets under custody/administration of $16.2 trillion, and assets under management of $1.6 trillion.

Mission

To be our clients’ most trusted financial partner, guarding and growing their assets as if they were our own.

Principles that Endure

Northern Trust’s core principles of service, expertise, and integrity have remained constant for over 130 years. Throughout our history and changing market environments, we have led by aligning our efforts with these guiding principles. Today, we remain committed to these founding principles which continue to unite and drive our workforce around the globe—delivering unparalleled service and expertise, with integrity.

 

Service Relentless drive to provide exceptional service		Expertise Resolving complex challenges with multi-asset class capabilities		Integrity Acting with the highest ethics, utmost honesty and unfailing reliability

 

PROXY SUMMARY

 

2021 FINANCIAL PERFORMANCE HIGHLIGHTS

Key highlights with respect to performance across the three pillars of our financial strategy are as follows:

 

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.

 

PROXY SUMMARY

 

 

SELECTED RECOGNITION

 

 

 

PROXY SUMMARY

 

2021 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 30 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 2021 and 2020 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 49, 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 2022 and February 2021 for the 2021 and 2020 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 and Chief Executive Officer			2021			$	950,000			$	2,500,000			$	5,525,000			$	2,975,000			$	11,000,000			$	11,950,000
			2020				950,000				1,175,000				4,436,250				2,388,750				8,000,000				8,950,000
Jason J. Tyler Chief Financial Officer			2021				550,000				1,080,000				1,638,000				882,000				3,600,000				4,150,000
			2020				500,000				650,000				1,137,500				612,500				2,400,000				2,900,000
Peter B. Cherecwich President—Corporate & Institutional Services			2021				625,000				1,440,000				2,184,000				1,176,000				4,800,000				5,425,000
			2020				625,000				900,000				1,592,500				857,500				3,350,000				3,975,000
Steven L. Fradkin President—Wealth Management			2021				625,000				1,440,000				2,184,000				1,176,000				4,800,000				5,425,000
			2020				625,000				950,000				1,690,000				910,000				3,550,000				4,175,000
Shundrawn A. Thomas President—Asset Management			2021				625,000				1,440,000				2,184,000				1,176,000				4,800,000				5,425,000
			2020				625,000				900,000				1,592,500				857,500				3,350,000				3,975,000

 

(1) Represents the applicable named executive officer’s salary, as determined in February 2021 and 2020, respectively. Mr. Tyler’s increase became effective April 1, 2021.

(2) Represents the total cash and equity incentive awards received by the applicable named executive officer in February 2022 for the 2021 performance year and February 2021 for the 2020 performance year, respectively.

 

2021 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 which vest ratably over a four-year period.

 

 

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

69

✓

C

✓

2

Susan Crown Independent Director Since 1997

63

✓

✓

1

Dean M. Harrison Independent Director Since 2015

67

✓

C*

✓

0

Jay L. Henderson Lead Director / Independent Director Since 2016

66

C

✓

✓

✓

✓

2

Marcy S. Klevorn Independent Director Since 2019

62

✓

✓*

1

Siddharth N. “Bobby” Mehta Independent Director Since 2019

63

✓*

✓

2

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

56

C

0

Jose Luis Prado Independent Director Since 2012

67

✓

✓

1

Martin P. Slark Independent Director Since 2011

67

1

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

55

✓

C

✓

1

Donald Thompson Independent Director Since 2015

58

✓

✓

1

Charles A. Tribbett III Independent Director Since 2005

66

C

✓

✓

0

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

 

PROXY SUMMARY

 

Board Tenure, Age and Diversity Statistics

 

 

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (“ESG”) HIGHLIGHTS

Northern Trust incorporates fundamental ESG considerations into how we operate as a corporation, as a financial steward for our clients, and as a participant in broader society. Recent actions demonstrating our commitment to ESG principles include:

 

●

We have committed to achieving Net Zero Carbon by 2050;

 

●

We provided approximately $236 million directly into underserved communities in 2021 through a combination of charitable grants and community investments focused on providing those communities access to education, food, health care, housing and workforce development;

 

●

We created a diverse and inclusive culture in which all individuals are welcomed, respected, supported, and valued so that they can fully participate in, and contribute to, realizing their goals and achieving greater for our clients, our business and society by:

 

¡

launching a reverse mentoring program focused on racial equity and gender balance, in which executive management members were mentored by employees; and

 

¡

establishing diversity, equity, and inclusion (“DE&I”) performance expectations for the executive leadership team and goals for senior title promotions and new hires.

 

●

We expanded our supplier diversity program through the launch of Business Diversity360, a tool that utilizes a holistic approach in assessing our vendors’ diversity commitments and goals;

 

●

We expanded our ESG reporting to include disclosure alignment to Sustainability Accounting Standards Board (“SASB”) standards, in addition to the disclosures aligned to the Global Reporting Initiative (“GRI”) standards and greenhouse gas emissions statements that we have published annually for more than a decade;

 

●

We demonstrated our commitment to transparency with the external publication of data from our U.S. EEO-1 Workforce Compliance Report; and

 

●

We have engaged with numerous companies in which we invest on our clients’ behalf to address certain ESG goals through our Asset Management business.

For more information on our ESG and DE&I activities, see “Corporate Governance—Environmental, Social, and Governance” on page 24 of this Proxy Statement.

 

PROXY SUMMARY

 

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 Self-Evaluations		✗  Plurality Voting in Uncontested Director Elections   ✗  Staggered Board   ✗  Poison Pill   ✗  Supermajority Voting Requirements   ✗  Overboarding of Directors

 

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   ✗  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 2023 ANNUAL MEETING

 

Stockholder Submission				Window for Submission
Proposals for inclusion in the proxy statement		g		On or before November 17, 2022
Other proposals (not included in the proxy statement)		g		Between November 27, 2022 and December 27, 2022
Director nomination under proxy access provisions		g		Between October 18, 2022 and November 17, 2022
Notification of intent to solicit proxies in support of director nominees other than the Corporation’s nominees		g		On or before February 25, 2023

 

ITEM 1—ELECTION OF DIRECTORS

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

Each of the twelve 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 twelve 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: 69   Board Committees   ●  Audit   ●  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 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, and strategy development and her experience as a director of other complex global corporations.

 

SUSAN CROWN

Independent Director
Director Since: 1997 Age: 63   Board Committees   ●  Business Risk   ●  Compensation and Benefits		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: 67   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, including his risk oversight experience.

 

JAY L. HENDERSON

Lead Director / Independent Director
Director Since: 2016 Age: 66   Board Committees   ●  Audit (Chair)   ●  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: 62   Board Committees   ●  Audit   ●  Business Risk*   *  Also the Chair of the Cybersecurity Risk Oversight Subcommittee		Professional Experience   ●   Ford Motor Company (global automaker)   ¡   Chief Transformation Officer, 2019   ¡   Executive Vice President and President, Mobility, 2017 to 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: 63   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   Other Recent Public and/or Investment Company Directorships   ●   TransUnion, 2007 to January 2022   ●   Piramal Enterprises Limited, 2013 to 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 and Chief Executive Officer
Director Since: 2017 Age: 56   Board Committees   ●  Executive (Chair)		Professional Experience   ●   Northern Trust Corporation and The Northern Trust Company   ¡   Chairman of the Board, since 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: 67   Board Committees   ●  Compensation and Benefits   ●  Corporate Governance		Professional Experience   ●   Palmex Alimentos (snack product ingredients manufacturer)   ¡   Executive Chairman, since February 2022   ●   Tropicale Foods Group (frozen foods manufacturer)   ¡   Chairman of the Board, since 2020   ●   Evans Food Group, Ltd. (global food company)   ¡   Vice Chairman, 2019 to 2021   ¡   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

 

MARTIN P. SLARK

Independent Director
Director Since: 2011 Age: 67		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 Liberty Mutual Insurance Company.

 

DAVID H. B. SMITH, JR.

Independent Director
Director Since: 2010 Age: 55   Board Committees   ●  Audit   ●  Capital Governance (Chair)   ●  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.

 

INFORMATION ABOUT THE NOMINEES FOR DIRECTOR

 

DONALD THOMPSON

Independent Director
Director Since: 2015 Age: 58   Board Committees   ●  Capital Governance   ●  Compensation and Benefits		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     Other Recent Public and/or Investment Company Directorships   ●   Beyond Meat, Inc., 2015 to May 2021 ●   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.

 

CHARLES A. TRIBBETT III

Independent Director
Director Since: 2005 Age: 66   Board Committees   ●  Compensation and Benefits (Chair)   ●  Corporate Governance   ●  Executive		Professional Experience   ●   Russell Reynolds Associates (global executive recruiting firm)   ¡   Vice Chairman of Board and CEO Advisory Group, since 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 at Russell Reynolds Associates.

 

INFORMATION ABOUT THE NOMINEES FOR DIRECTOR

 

 

 

BOARD AND BOARD COMMITTEE INFORMATION

Our Board currently consists of twelve members. The Board has determined that each of the following eleven 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, Martin P. Slark, David H. B. Smith, Jr., Donald Thompson and Charles A. Tribbett III.

During 2021, the Corporation’s Board held seven meetings. All incumbent directors during 2021 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. 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 2021 Annual Meeting of Stockholders held on April 20, 2021.

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. The Cybersecurity Risk Oversight Subcommittee assists the Business Risk Committee in discharging its oversight duties with respect to cybersecurity risk. With the exception of the Executive Committee, all standing committees and subcommittees 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   Jay L. Henderson (Chair)   Linda Walker Bynoe   Dean M. Harrison   Marcy S. Klevorn   David H. B. Smith, Jr.		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, and Smith and Ms. Bynoe each satisfy the definition of “audit committee financial expert,” under SEC rules.   The Audit Committee met nine times in 2021.

 

BUSINESS RISK COMMITTEE
MEMBERS   Dean M. Harrison (Chair)   Susan Crown   Marcy S. Klevorn   Siddharth N. “Bobby” Mehta		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 five times in 2021.   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 met eleven times in 2021.

 

CAPITAL GOVERNANCE COMMITTEE
MEMBERS   David H. B. Smith, Jr. (Chair)   Jay L. Henderson   Siddharth N. “Bobby” Mehta   Donald Thompson		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 management 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 and the Bank’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 seven times in 2021.

 

BOARD AND BOARD COMMITTEE INFORMATION

 

COMPENSATION AND BENEFITS COMMITTEE
MEMBERS   Charles A. Tribbett III (Chair)   Susan Crown   Jay L. Henderson   Jose Luis Prado   Donald Thompson		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 four times in 2021.

 

CORPORATE GOVERNANCE COMMITTEE
MEMBERS   Linda Walker Bynoe (Chair)   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   ●   other ESG 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 2021.

 

EXECUTIVE COMMITTEE
MEMBERS   Michael G. O’Grady (Chair)   Linda Walker Bynoe   Dean M. Harrison   Jay L. Henderson   David H. B. Smith, Jr.   Charles A. Tribbett III		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 2021.

 

 

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 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”:

 

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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;

 

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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;

 

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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;

 

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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

 

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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.

 

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“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 2021 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 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 Ms. Klevorn and 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 within the Wealth Management business of the Bank. In such role, Ms. Finley earned compensation in excess of $120,000 in 2021, 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. Mr. Henderson recuses himself from consideration of such matters.

Executive Sessions

The independent directors of the Corporation met in executive sessions separate from management seven times during 2021. 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 2021. These sessions were led by the respective independent committee Chairs.

 

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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, an annual formal self-evaluation overseen by the Corporate Governance Committee, and opportunities to provide candid reflection on the performance of other directors. 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.   In 2021, the Committee’s consideration of the self-evaluation process was informed by a review conducted by an independent third-party expert, pursuant to which certain enhancements to the process were implemented.

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, committee, and director performance ●  Board and committee composition, diversity and leadership ●  Management’s relationship with the Board and information flow ●  Corporate strategy and risks ●  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 cybersecurity and digital strategy topics, as well as certain enhancements to Board and committee practices and meeting materials which were implemented throughout 2021.

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:

 

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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

 

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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;

 

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

 

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

 

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

 

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

 

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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

 

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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 (including, as described below, the Cybersecurity Risk Oversight Subcommittee), 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 an 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 a third-party 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 management 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 management 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, Technology and Cyber Risk Oversight

As a financial services company entrusted with the safeguarding of sensitive information, the Board believes that a strong information security, technology and cyber 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, technology and cyber 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, technology and cyber risk; annually reviews and approves the Corporation’s information security, technology, and cyber risk management policy; and receives regular updates from management, including the Chief Information Risk Officer, on the Corporation’s information security, technology and cyber risk management practices and profile. 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, receive relevant industry updates, and review tabletop exercises designed to evaluate the Corporation’s cybersecurity event management capabilities.

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, 2021.

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:

 

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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;

 

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

 

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

 

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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.

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 specified in the Corporation’s By-laws and described further under “Stockholder Proposals for 2023 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

 

CORPORATE GOVERNANCE

 

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 2021, 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.

 

Who We Engage		How We Engage		Who Participates
● Institutional investors   ● Sell-side analysts   ● Retail stockholders   ● Pension funds   ● Bondholders   ● Proxy advisory firms   ● Rating agencies / firms		● One-on-one and group meetings, in-person and virtually   ● Quarterly earnings calls   ● Industry and sell-side presentations and conferences   ● Written and electronic communications		● Executive management   ● Investor relations team   ● Senior leadership   ● Subject matter experts
				Key Topics of Engagement
				● Overall business strategy
				● Current business conditions
				● Financial updates   ● Business continuity and actions through the pandemic   ● Sustainability, corporate citizenship, and social impact   ● Corporate governance practices   ● Executive compensation
Key Engagement Resources
● Quarterly earnings   ● Annual meeting   ● Annual proxy statement   ● Annual report   ● Other SEC filings		● Northern Trust’s website   ● Corporate social responsibility report   ● Public events and presentations   ● Disclosures to various ratings assessors

Environmental, Social, and Governance

Northern Trust incorporates fundamental ESG considerations into how we operate as a corporation, as a financial steward for our clients, and as a participant in broader society. This represents a natural extension of our principles-based legacy of client-centricity, deep expertise, and commitment to integrity.

We believe that sustainable outcomes and financial returns can be jointly achieved by a powerful combination of data, insightful analytics and leading technology. We remain committed to these practices to achieve greater for our clients, stockholders, partners, communities and other key stakeholders.

 

CORPORATE GOVERNANCE

 

We are also committed to transparent disclosure of our ESG practices. Since 2010, we have published an annual sustainability report using the GRI standards to provide an update on our performance. In addition, for more than a decade, we have published a greenhouse gas emissions statement annually. Most recently, we added the SASB standards to our reporting. In 2021, we also established an internal risk climate caucus and completed an analysis of our investment portfolio to ensure alignment with the recommendations of the Task Force on Climate-Related Financial Disclosures (“TCFD”).

ESG Governance Structure

 

Our vision for ESG is embedded at all levels of our organization. Our Board, and in particular its Corporate Governance Committee, engages in active oversight of ESG matters of significance to the Corporation and its subsidiaries. In addition, the Board’s Business Risk Committee provides oversight of certain financial and operational risks associated with climate change and other environmental risk factors through its oversight of the Corporation’s global risk management framework and risk management policies.   Our Head of Sustainability, Inclusion and Social Impact, who reports directly to our Chairman and CEO, is responsible for the design and implementation of our enterprise ESG strategy and also chairs the Sustainability, Inclusion and Social Impact Council, a group of senior employees that enables the implementation of Northern Trust’s ESG strategy through the setting and tracking of goals related to material aspects of our ESG strategy and initiatives.

Recent ESG Achievements

Recent actions demonstrating our commitment to ESG principles include:

 

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We have committed to achieving Net Zero Carbon by 2050;

 

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We provided approximately $236 million directly into underserved communities in 2021 through a combination of charitable grants and community investments focused on providing those communities access to education, food, health care, housing and workforce development;

 

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We created a diverse and inclusive culture in which all individuals are welcomed, respected, supported, and valued so that they can fully participate in, and contribute to, realizing their goals and achieving greater for our clients, our business and society by:

 

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launching a reverse mentoring program focused on racial equity and gender balance, in which executive management members were mentored by employees; and

 

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establishing DE&I performance expectations for the executive leadership team and goals for senior title promotions and new hires.

 

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We expanded our supplier diversity program through the launch of Business Diversity360, a tool that utilizes a holistic approach in assessing our vendors’ diversity commitments and goals;

 

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As noted above, we expanded our ESG reporting to include disclosure alignment to SASB standards;

 

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We demonstrated our commitment to transparency with the external publication of data from our U.S. EEO-1 Workforce Compliance Report; and

 

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We have engaged with numerous companies in which we invest on our clients’ behalf to address certain ESG goals through our Asset Management business.

 

CORPORATE GOVERNANCE

 

For more information regarding our ESG activities—including our focus on DE&I; community engagement; environmental impact; and sustainable products and services—see “Helpful Resources—Environmental, Social, and Governance” on page 75.

Human Capital Management

At Northern Trust, our employees are our most important assets. Because the success of our company relies on the strength of the people we employ, our search for and retention of talent is critical. We invest in our employees holistically to continually develop a diverse pipeline of future leaders and to help employees advance their individual careers. The overview below outlines Northern Trust’s human capital objectives—talent acquisition, development, and management and total rewards.

Talent Acquisition, Development, and Management

We pride ourselves in attracting strong talent and have identified the development of diverse talent as a strategic priority. Our focus on career development, work/life balance, diversity, and our unique culture of care and collaboration also contribute to our employer brand.

Sourcing and Recruitment. We target our talent identification, sourcing methods, and recruitment strategies to specific locations using various channels such as job boards, colleges, professional networks, associations and online social networks. We base hiring decisions on a variety of factors including relevant experience and accomplishments, educational background, professional licensing, and strong evidence of integrity and ethical behavior.

Onboarding. Northern Trust is committed to helping all new hires succeed from day one. New employees begin their onboarding process with a comprehensive learning roadmap that orients them to our history, brand, businesses, and culture. Orientation programs also augment the onboarding experience by providing global, regional, and/or local information along with networking activities to help connect new hires to each other and other colleagues.

Learning and Development. An integrated partnership between our enterprise-wide and functional learning and development teams ensures we deliver holistic training solutions. Through our online learning portal, Northern Trust University, all employees can access a portfolio of professional and functional training solutions most helpful to their role. Our training content is dynamic as we regularly evaluate and offer courses and resources that will allow our employees to develop skills most critical to servicing our clients and developing their careers. An emerging area of focus is helping expand digital, analytical and financial acumen and skills across the enterprise. Many of our programs are interactive, include peer networking, and offer direct access to expert facilitators. Training is offered in both virtual and classroom instructor-led formats.

Talent Cultivation and Review. Northern Trust is committed to identifying and developing a deep pipeline of diverse, future talent at all levels across the globe to meet our evolving business needs. Annually, managers conduct talent assessments, and business and regional leadership teams hold talent reviews focused on specific topics, such as workforce

 

CORPORATE GOVERNANCE

 

needs, diversity, top talent, development opportunities, readiness for promotion, internal movement, and succession plans. Robust talent discussions are held annually with our executive management team and Board.

Executive Officer 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.

Performance Management. Northern Trust’s annual performance management process includes goal setting, mid-year check-ins, multi-rater feedback, and year-end reviews. Priorities are set by our CEO and applied to each business, department, team and individual. Managers are encouraged to provide regular feedback and real-time coaching to enhance performance outcomes and continually develop our talent.

Engagement and Recognition. Building an inclusive, connected and engaged employee culture is essential to retaining our talent. We invite all employees to provide management with anonymous responses about their everyday experiences at work through an annual Employee Engagement Survey and periodically through pulse surveys and other interactive feedback channels. Results are thoroughly evaluated to identify strengths, progress, and opportunities to further strengthen employee engagement, and are transparently shared with both employees and the Board. We also foster an “attitude of gratitude” through our online recognition platform that allows employees to recognize one another for everyday contributions.

Total Rewards

Our compensation and benefit programs are designed to be market competitive and positioned around the median of the local market, enabling us to attract and retain talent needed to deliver on our strategy.

Compensation Programs. Our compensation programs are intended to motivate our employees to deliver the highest-quality service to our clients and achieve the greatest collective business results. They are designed, implemented and communicated to promote behaviors that are consistent with Northern Trust’s desired culture, character and enduring principles of service, expertise, and integrity. We also regularly review our compensation processes and programs and take appropriate measures to ensure we can attract and retain talent in relevant markets.

Northern Trust’s base salary programs provide a competitive level of fixed pay reflecting each employee’s position, experience, qualifications and tenure. Additionally, all employees are eligible for incentive compensation to reward performance that delivers superior team or individual results. Incentive compensation is linked to both financial and nonfinancial performance criteria, including risk considerations, as determined by our Board and senior management. Select senior leaders and individual contributors may receive a percentage of their incentive in Northern Trust stock to encourage retention of key talent and to align rewards with company performance.

Employee Benefits. While the exact composition of the employee benefit package varies by country, our benefit programs are designed to be locally competitive, to meet the needs of our employees and their families, and to reflect the cultural values of the organization. Typical benefit programs include retirement, health care, paid time off, income protection such as disability and life insurance, leaves of absence, and access to our Employee Assistance Program. We have expanded our focus on employee well-being by providing additional programs and resources to improve wellness. These programs focus on how to manage stress, build resiliency, and be attuned to mental health issues; access to flexible or voluntary benefits; and enhancements to various parental leave offerings.

Continued Commitment to our Employees During the COVID-19 Pandemic

During the COVID-19 pandemic, we have remained focused on the health and well-being of our workforce. As the prolonged public health crisis has unfolded, Northern Trust has responded by providing additional health and well-being resources to our employees, including expanded virtual access to health care and well-being programs; a well-being learning center with tools for working effectively in a virtual environment; and virtual focus groups allowing employees to provide feedback and build connections with colleagues. We also provided additional paid-time-off for a COVID-19 diagnosis and

 

CORPORATE GOVERNANCE

 

supported all employees electing to receive the COVID-19 vaccine with additional paid-time-off to obtain and recover from the primary series vaccine or booster shot. To facilitate COVID-19 vaccinations in India and the Philippines, we hosted on-site vaccine drives (in India) and participated in a program which provided access to vaccines for our employees (in the Philippines). We also reimbursed vaccine costs for employees and their immediate family members in India.

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 Trust Corporation, 50 South La Salle Street, M-9, 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, as well as derivatives such as swaps, forwards, futures 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 17, 2022, 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 2021 compensation decisions for our named executive officers are described in the Compensation Discussion and Analysis that begins on page 30 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 2021 named executive officers, which consist of the following individuals.

 

Name		Title
Michael G. O’Grady		Chairman 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

In determining compensation for our named executive officers, the Compensation and Benefits Committee (and, in the case of the Chairman and CEO, the full Board), takes into account both the overall performance of the Corporation, as well as individual performance considerations.

 

Corporate Performance                        Considerations

Individual Performance Considerations

Compensation                                  Decisions

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Corporate Performance Summary

2021 Financial Performance Highlights

Key highlights with respect to performance across the three pillars of our financial strategy are as follows:

 

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.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

2021 Business / Strategic Performance Highlights

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

 

●

Our Corporate & Institutional Services (“C&IS”) business invested in and expanded digital capabilities, like our Application Programming Interface (“API”) Developer Portal and Front Office Solutions, to offer clients greater efficiency, clarity and guidance in helping them reach their goals.

 

●

Our Wealth Management business continued to strengthen its competitive position within target markets, with Northern Trust named the “Best Private Bank” in the United States and the “Best Private Bank for Family Office Services” by the Financial Times Group and Global Finance Magazine, respectively.

 

●

Our Asset Management business drove innovation in the ESG space, launching a number of new products and services that support sustainability, including our Northern Trust ESG Vector Score™.

 

●

We executed on programs like Business Diversity360 to make strides in addressing and promoting diversity, equity and inclusion in all of our business practices, including with respect to supplier selection and fund manager evaluation.

 

●

We continued to make progress on further embedding a culture of sustainable expense management across the organization.

2021 Risk Management Performance Highlights

Execution with respect to management of our financial and nonfinancial risks was reflected in:

 

●

Our organizational resiliency throughout the COVID-19 pandemic, with a focus on the health and well-being of our workforce, continued delivery of a high-level of service to meet our clients’ needs, and continued support for the communities in which we operate.

 

●

The robustness of our CCAR processes, capital management policies and regulatory capital ratios, with our Common Equity Tier 1 ratio at 11.9% percent as of December 31, 2021.

 

●

The continued strength of our balance sheet—including the high quality of our loan and investment security portfolios—as well as our liquidity position.

 

●

Our steadfast commitment to a culture of risk awareness, good conduct, accountability, and respect for regulatory compliance.

 

●

Our solid progress on key enterprise risk management programs, including significant investments to strengthen further our technology environment, with a focus on reliability, resiliency, and cybersecurity.

Named Executive Officer Performance Summary

In determining the compensation for our named executive officers for 2021, the Compensation and Benefits Committee also evaluated each named executive officer’s individual performance, consisting of:

 

●

assessments of performance against individual financial, business and risk management objectives; and

 

●

evaluation of performance against pre-defined talent- and corporate leadership-related goals for each named executive officer. These goals are intended to promote a focus on factors such as DE&I, talent development, employee engagement and leadership behaviors. Individual named executive officer performance is reviewed in the section below titled “2021 Compensation Design and Decisions—2021 Individual Performance Considerations” beginning on page 39.

2021 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 2021 and 2020 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 49, 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

 

COMPENSATION DISCUSSION AND ANALYSIS

 

long-term incentive awards granted in February 2022 and February 2021 for the 2021 and 2020 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 and Chief Executive Officer			2021			$	950,000			$	2,500,000			$	5,525,000			$	2,975,000			$	11,000,000			$	11,950,000
			2020				950,000				1,175,000				4,436,250				2,388,750				8,000,000				8,950,000
Jason J. Tyler Chief Financial Officer			2021				550,000				1,080,000				1,638,000				882,000				3,600,000				4,150,000
			2020				500,000				650,000				1,137,500				612,500				2,400,000				2,900,000
Peter B. Cherecwich President—Corporate & Institutional Services			2021				625,000				1,440,000				2,184,000				1,176,000				4,800,000				5,425,000
			2020				625,000				900,000				1,592,500				857,500				3,350,000				3,975,000
Steven L. Fradkin President—Wealth Management			2021				625,000				1,440,000				2,184,000				1,176,000				4,800,000				5,425,000
			2020				625,000				950,000				1,690,000				910,000				3,550,000				4,175,000
Shundrawn A. Thomas President—Asset Management			2021				625,000				1,440,000				2,184,000				1,176,000				4,800,000				5,425,000
			2020				625,000				900,000				1,592,500				857,500				3,350,000				3,975,000

 

(1) Represents the applicable named executive officer’s salary, as determined in February 2021 and 2020, respectively. Mr. Tyler’s increase became effective April 1, 2021.

(2) Represents the total cash and equity incentive awards received by the applicable named executive officer in February 2022 for the 2021 performance year and February 2021 for the 2020 performance year, respectively.

The increase in the total incentive compensation of each of our named executive officers reflects the Corporation’s strong 2021 financial performance, consideration of peer compensation levels, and, with respect to Mr. Tyler, the additional experience and tenure gained in his role as CFO. Further information with respect to the performance factors impacting each named executive officer’s compensation for 2021 can be found under “2021 Compensation Design and Decisions—2021 Individual Performance Considerations” beginning on page 39.

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 DISCUSSION AND ANALYSIS

 

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   ✗  Compensation plans that encourage excessive risk-taking   ✗  Excessive perquisites   ✗  Repricing of underwater options   ✗  Dividend equivalents distributed on unvested performance or restricted stock unit awards

2021 Advisory Vote on Executive Compensation

 

Our 2020 named executive officer compensation was approved on an advisory basis by our stockholders at our 2021 Annual Meeting of Stockholders. Approximately 95% of the votes present and entitled to vote at the meeting, including abstentions, supported approval of 2020 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 24 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 2021 reflect the Board and the Committee’s belief, based on the results of the advisory vote on 2020 named executive officer compensation and our ongoing dialogue with stockholders, that our stockholders generally support our overall executive compensation program.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

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 average ROE targets on an absolute basis and, beginning with awards granted on February 18, 2020, our three-year average ROE relative to that of our performance peer group.
Aligned with Stockholder Interests		●  Majority of incentive compensation is delivered in long-term incentives (approximately 77% of 2021 total incentive 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.

To reinforce the important role of effective risk management in our compensation framework, 65% of long-term incentive awards to named executive officers for 2021 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 an 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 a third-party 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 also presents an annual

 

COMPENSATION DISCUSSION AND ANALYSIS

 

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.

Executive Compensation Program Elements

The table below provides a brief description of the elements of our 2021 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 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

 

Executive Compensation Determination Process

Role of the Board of Directors

The full Board 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

Throughout the year, the Compensation and Benefits Committee evaluates the effectiveness of the executive compensation program and discusses the performance of the company and executives.

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 determines the amount of individual compensation to be awarded to our executive officers by evaluating overall company performance, as well as individual executive officer performance and market compensation levels and expected trends. In doing so, the Committee focuses on each executive officer’s total direct compensation, taking into account all elements of our executive compensation program holistically rather than each compensation element individually.

The Compensation and Benefits Committee’s evaluation of overall company performance is based on a review of financial, business and risk management performance relative to corporate goals. The Committee’s review of financial performance focuses on comparisons of key financial indicators relative to prior year and budget performance as well as relative to peers and relevant indices. The Committee’s review of risk management performance focuses on financial and nonfinancial risks and key enterprise programs. The Committee’s review of business performance focuses on annual objectives that drive progress against our long-term strategic plan.

The Compensation and Benefits Committee’s evaluation of individual executive officer performance is based on a review of financial, business and risk management performance, and based on each executive officer’s role and responsibilities. The Committee also evaluates each individual’s leadership- and talent (including DE&I)-related performance. In evaluating performance, the Committee may consider additional factors—including individual performance in nonfinancial areas that are important to long-term growth and the enhancement of stockholder value—and does not assign a specific weight to any individual factor. This flexibility allows the Committee to make incentive compensation decisions that reflect, among other things, our business model and strategy, prevailing market trends, evolution in the financial and regulatory environment, and risk management objectives. In the case of the Chairman and CEO, the Committee shares its 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 considerations with respect to overall company performance, as well as performance against the past year’s individual performance expectations, including 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 Committee during 2021. The Committee’s independent compensation consultant provides insights into compensation trends