UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Soliciting Material under §240.14a-12 |
THE PNC FINANCIAL SERVICES GROUP, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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Integrity.
Innovation.
Insight.
LETTER FROM THE CHAIRMAN AND
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PARTICIPATE IN THE FUTURE OF PNC PLEASE CAST YOUR VOTE
Your vote is important to us and we want your shares to be represented at the annual meeting. Please cast your vote on the proposals listed below.
Under New York Stock Exchange (NYSE) rules, if you hold your shares through a broker, bank, or other nominee (street name), and you do not provide any voting instructions, your broker has discretionary authority to vote on your behalf for items that are considered routine. The only routine item on this years ballot is the ratification of our auditor selection. If an item is non-routine and you do not provide voting instructions, no vote will be cast on your behalf.
Proposals requiring your vote
More information |
Board recommendation |
Routine item? |
Abstentions | Votes required for approval | ||||||||
Item 1 | Election of 13 nominated directors | Page 12 | FOR each nominee |
No | Do not count |
Majority of shares cast | ||||||
Item 2 |
Ratification of independent registered public accounting firm for 2016 |
Page 81 |
FOR |
Yes |
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Item 3 |
Approval of 2016 Incentive Award Plan |
Page 84 |
FOR |
No |
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Item 4 |
Advisory approval of the compensation of PNCs named executive officers (say-on-pay) |
Page 95 |
FOR |
No |
Vote your shares
Please read this proxy statement with care and vote right away. We offer a number of ways for you to vote your shares. We include voting instructions in the Notice of Availability of Proxy Materials and the proxy card. If you hold shares in street name, you will receive information on how to give voting instructions to your broker or bank. For registered holders, we offer the following methods to vote your shares and give us your proxy:
www.envisionreports.com/PNC | Follow the instructions on the proxy card. |
Complete, sign and date the proxy card and return it in the envelope provided. |
Attend our 2016 Annual Meeting of Shareholders
Directions to attend the annual meeting | Tuesday, April 26, 2016 at 11:00 a.m. | |
are available at | The Tower at PNC Plaza James E. Rohr Auditorium | |
www.pnc.com/annualmeeting | 300 Fifth Avenue | |
Pittsburgh, Pennsylvania 15222 |
4 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
PROXY STATEMENT SUMMARY
Proxy Statement Summary
To assist you in reviewing the proposals to be acted upon, we have included a summary of certain information. This summary does not contain all of the information that you should consider, and you should review our entire proxy statement and the 2015 Annual Report before you vote.
You may also read our proxy statement and 2015 Annual Report at www.envisionreports.com/PNC.
Who can vote (page 98)
You are entitled to vote if you were a shareholder on the record date of January 29, 2016.
How to vote (page 99)
We offer our shareholders a number of ways to vote, including by Internet, telephone, or mail. Shareholders may also vote in person at the annual meeting.
Voting matters
Item 1: Election of directors (page 12)
| The proxy statement contains important information about the experience, qualifications, attributes, and skills of the 13 nominees to our Board of Directors. Our Boards Nominating and Governance Committee performs an annual assessment to confirm that our directors continue to have the skills and experience to serve PNC, and that our Board and its committees continue to be effective in carrying out their duties. |
| Our Board recommends that you vote FOR all 13 director nominees. |
Item 2: Ratification of auditors (page 81)
| Each year, our Boards Audit Committee selects PNCs independent registered public accounting firm. For 2016, the Audit Committee selected PricewaterhouseCoopers LLP (PwC) to fulfill this role. |
| Our Board recommends that you vote FOR the ratification of the Audit Committees selection of PwC as our independent registered public accounting firm for 2016. |
Item 3: Approval of 2016 Incentive Award Plan (page 84)
| We ask shareholders to approve a new equity compensation plan, the 2016 Incentive Award Plan, allowing us to make equity-based compensation awards to employees and directors. If the 2016 Incentive Award Plan is approved, it will replace the 2006 Incentive Award Plan, and no further awards will be made under the 2006 Incentive Award Plan. Our Board adopted the 2016 Incentive Award Plan on March 3, 2016, and it will become effective as of April 26, 2016, subject to shareholder approval. We ask shareholders to approve the plan. |
| Our Board recommends that you vote FOR the approval of the 2016 Incentive Award Plan. |
Item 4: Say-on-pay (page 95)
| We ask shareholders to cast a non-binding advisory vote on our executive compensation program known generally as the say-on-pay vote. We have offered a say-on-pay vote since 2009, and our shareholders confirmed their preference for annual votes in 2011. Last year, 97% of the votes cast by our shareholders supported our executive compensation program, and PNC has averaged 92% support in its say-on-pay votes over the past five years. |
| We recommend that you read the Compensation Discussion and Analysis (CD&A) (beginning on page 39), which explains how and why our Boards Personnel and Compensation Committee made executive compensation decisions for 2015. |
| Our Board recommends that you vote FOR the non-binding advisory vote on executive compensation (say-on-pay). |
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 5
PROXY STATEMENT SUMMARY
2015 PNC performance (pages 39 to 40)
In 2015, we delivered consistent results in a challenging operating environment, with net income of $4.1 billion (8% over budget) and diluted earnings per share of $7.39 (7.4% over budget) we have earned at least $1 billion in net income during each of the past eleven quarters | ||
Our annual total shareholder return (TSR) was the second-highest in our peer group and our three-year TSR was the highest in our peer group our stock price also reached an all-time high in 2015 | ||
We diversified and improved our sources of revenue by successfully growing noninterest income and allowing our net interest income to decline rather than adding riskier loans in a continued low interest rate environment | ||
We continued to manage our costs, reducing our expenses for the third year in a row and exceeding our revised continuous improvement goal of $500 million in expense savings (up from our initial 2015 goal of $400 million) | ||
We strengthened our capital throughout the year and returned capital to our shareholders through both a common stock dividend increase and share repurchases | ||
Continued to make strategic investments to position PNC for long-term success, including significant upgrades to our technology infrastructure, transforming the retail bank, and building a leading banking franchise in our underpenetrated markets |
2015 compensation decisions (page 47)
The table below shows, for each NEO, the incentive compensation target for 2015 and the actual annual cash incentive and long-term equity-based incentives awarded in 2016 for 2015 performance.
2015 incentive compensation decisions | William S. Demchak |
Robert Q. Reilly |
Michael P. Lyons |
E William Parsley, III(1) |
Joseph C. Guyaux |
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Incentive compensation target |
$ | 9,900,000 | $ | 3,000,000 | $ | 4,800,000 | $ | 5,500,000 | $ | 2,480,000 | ||||||||||
Incentive compensation awarded |
$ | 11,900,000 | $ | 3,300,000 | $ | 6,100,000 | $ | 6,100,000 | $ | 2,880,000 | ||||||||||
Annual incentive award (cash) |
$ | 4,100,000 | $ | 1,400,000 | $ | 2,020,000 | $ | 1,300,000 | $ | 1,130,000 | ||||||||||
Long-term incentive award (equity-based) |
$ | 7,800,000 | $ | 1,900,000 | $ | 4,080,000 | $ | 4,800,000 | $ | 1,750,000 |
(1) | Mr. Parsleys incentive compensation award includes two grants the grant of equity-based awards that all other NEOs would otherwise receive (valued at $1,800,000) and a separate grant of incentive performance units related to the management of our Asset & Liability Management (ALM) unit, valued at $3,000,000. Please see page 63 for a discussion of Mr. Parsleys ALM units. |
The amounts shown in the table above differ from the amounts reflected in the Summary compensation table on page 58. In accordance with SEC regulations, that table shows the long-term equity-based incentives granted in 2015 based on 2014 performance.
PNC governance (page 18)
| You can find out more about our governance policies and principles at www.pnc.com/corporategovernance. |
| Our entire Board is re-elected every year; we have no staggered elections. |
| Our Board is subject to a majority voting requirement; any director not receiving a majority of votes in an uncontested election must tender his or her resignation to the Board. |
| Our corporate governance guidelines require the Board to have a substantial majority (at least 2/3) of independent directors. Currently, 15 out of 16 directors (94%) are independent, and our only non-independent director is our CEO. All but one of our nominees to the Board (12 out of 13, or 92%) are independent. |
| Our Board has had a Presiding Director, a lead independent director with specific duties, since 2004. |
| Our Presiding Director approves Board meeting schedules and agendas. |
| Our Board meets regularly in executive session, with no members of management present. |
6 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
PROXY STATEMENT SUMMARY
| In 2015, our Board met 10 times and each of our directors attended at least 75% of the aggregate number of meetings of the Board and the committees on which he or she served. The average attendance of all directors at Board and committee meetings was 99%. All current directors then serving attended our 2015 Annual Meeting of Shareholders. |
We have four primary standing board committees:
| Audit Committee |
| Personnel and Compensation Committee (Compensation) |
| Nominating and Governance Committee (Governance) |
| Risk Committee |
Board nominees (page 12)
Name | Age | Director since | Independent | Primary Standing Committee Memberships | ||||
Charles E. Bunch |
66 | 2007 | þ | Compensation; Governance | ||||
Marjorie Rodgers Cheshire |
47 | 2014 | þ | Audit; Risk | ||||
William S. Demchak |
53 | 2013 | ¨ | Risk | ||||
Andrew T. Feldstein |
51 | 2013 | þ | Compensation; Risk (Chair) | ||||
Daniel R. Hesse |
62 | 2016 | þ | Risk | ||||
Kay Coles James |
66 | 2006 | þ | Governance; Risk | ||||
Richard B. Kelson |
69 | 2002 | þ | Audit (Chair); Compensation | ||||
Jane G. Pepper |
70 | 1997 | þ | Risk | ||||
Donald J. Shepard |
69 | 2007 | þ | Audit; Governance (Chair); Risk | ||||
Lorene K. Steffes |
70 | 2000 | þ | Risk | ||||
Dennis F. Strigl |
69 | 2001 | þ | Compensation (Chair); Governance | ||||
Michael J. Ward |
65 | 2016 | þ | Compensation; Governance | ||||
Gregory D. Wasson |
57 | 2015 | þ | Audit |
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 7
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS | 11 | |||
ELECTION OF DIRECTORS (ITEM 1) | 12 | |||
CORPORATE GOVERNANCE | 18 | |||
18 | ||||
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DIRECTOR AND EXECUTIVE OFFICER RELATIONSHIPS | 30 | |||
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RELATED PERSON TRANSACTIONS | 35 | |||
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35 | ||||
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE | 36 | |||
DIRECTOR COMPENSATION | 36 | |||
37 | ||||
COMPENSATION DISCUSSION AND ANALYSIS | 39 | |||
39 | ||||
40 | ||||
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COMPENSATION COMMITTEE REPORT | 55 |
8 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
COMPENSATION AND RISK | 56 | |||
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COMPENSATION TABLES | 58 | |||
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CHANGE IN CONTROL AND TERMINATION OF EMPLOYMENT | 73 | |||
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SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS | 79 | |||
80 | ||||
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (ITEM 2) | 81 | |||
81 | ||||
Procedures for pre-approving audit, audit-related and permitted non-audit services |
82 | |||
REPORT OF THE AUDIT COMMITTEE | 83 | |||
APPROVAL OF 2016 INCENTIVE AWARD PLAN (ITEM 3) | 84 | |||
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93 |
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 9
10 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
of Shareholders
|
Tuesday, April 26, 2016
11:00 a.m. (Eastern time)
The Tower at PNC Plaza James E. Rohr Auditorium, 300 Fifth Avenue, Pittsburgh, Pennsylvania 15222
WEBCAST
A listen-only webcast of our annual meeting will be available at www.pnc.com/annualmeeting. An archive of the webcast will be available on our website for thirty days.
CONFERENCE CALL
You may access the listen-only conference call of the annual meeting by calling 877-272-3498 or 303-223-2682 (international). A telephone replay will be available for one week by calling 800-633-8284 or 402-977-9140 (international), conference ID 21804913.
ITEMS OF BUSINESS
1. | Electing as directors the 13 nominees named in the proxy statement that follows, to serve until the next annual meeting and until their successors are elected and qualified; |
2. | Ratifying the Audit Committees selection of PricewaterhouseCoopers LLP as PNCs independent registered public accounting firm for 2016; |
3. | Approval of the 2016 Incentive Award Plan; |
4. | An advisory vote to approve named executive officer compensation; and |
5. | Such other business as may properly come before the meeting. |
RECORD DATE
The close of business on January 29, 2016 is the record date for determining shareholders entitled to receive notice of and to vote at the meeting and any adjournment.
MATERIALS TO REVIEW
We began providing access to this proxy statement and a form of proxy card on March 15, 2016. We have made our proxy materials available electronically. Certain shareholders will receive a notice explaining how to access our proxy materials and vote. Other shareholders will receive a paper copy of this proxy statement and a proxy card.
PROXY VOTING
Even if you plan to attend the annual meeting in person, we encourage you to cast your vote over the Internet, or if you have a proxy card, by mailing the completed proxy card, or by telephone. This Notice of Annual Meeting and Proxy Statement and our 2015 Annual Report are available at www.envisionreports.com/PNC.
ADMISSION
To be admitted to our annual meeting you must present proof of your stock ownership as of the record date and valid photo identification. Each shareholder may bring one guest who must present valid photo identification. Please follow the admission procedures described beginning on page 97 of this proxy statement.
March 15, 2016 By Order of the Board of Directors, |
Christi Davis
Corporate Secretary
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 11
ELECTION OF DIRECTORS (ITEM 1)
12 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
ELECTION OF DIRECTORS (ITEM 1)
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 13
ELECTION OF DIRECTORS (ITEM 1)
14 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
ELECTION OF DIRECTORS (ITEM 1)
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 15
ELECTION OF DIRECTORS (ITEM 1)
16 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
ELECTION OF DIRECTORS (ITEM 1)
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 17
Recent corporate governance developments
Corporate governance guidelines
18 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
CORPORATE GOVERNANCE
Our Board leadership structure
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 19
CORPORATE GOVERNANCE
20 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
CORPORATE GOVERNANCE
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 21
CORPORATE GOVERNANCE
Audit Committee
Chair | Other members: | |||
Richard B. Kelson |
Paul W. Chellgren | |||
Marjorie Rodgers Cheshire | ||||
Donald J. Shepard | ||||
Gregory D. Wasson | ||||
The Audit Committee consists entirely of directors who are independent as defined in the NYSEs corporate governance rules and in the regulations of the Securities and Exchange Commission related to audit committee members. When our Board meets on April 26, 2016 to organize its committees, only independent directors will be appointed to the Committee.
Mr. Chellgren will not stand for re-election to the Board at the annual meeting and, following the annual meeting, he will no longer be a member of the Committee.
The Board has determined that each Audit Committee member is financially literate and that at least two members possess accounting or related financial management expertise. The Board made these determinations in its business judgment, based on its interpretation of the NYSEs requirements for committee members. Acting on the recommendation of the Nominating and Governance Committee, the Board of Directors determined that Mr. Chellgren, Mr. Kelson and Mr. Wasson are each an audit committee financial expert, as that term is defined by the SEC.
Our Board most recently approved the charter of the Audit Committee on November 19, 2015, and it is available on our website.
The Audit Committee satisfies the requirements of SEC Rule 10A-3, which includes the following topics:
| The independence of committee members |
| The responsibility for selecting and overseeing our independent auditors |
| The establishment of procedures for handling complaints regarding our accounting practices |
| The authority of the committee to engage advisors |
| The determination of appropriate funding for payment of the independent auditors and any outside advisors engaged by the committee and for the payment of the committees ordinary administrative expenses |
The Audit Committees primary purposes are to assist the Board by:
| Monitoring the integrity of our consolidated financial statements |
| Monitoring internal control over financial reporting |
| Monitoring compliance with our code of ethics |
| Evaluating and monitoring the qualifications and independence of our independent auditors |
| Evaluating and monitoring the performance of our internal audit function and our independent auditors |
At each in-person meeting of our full Board, the chair of the Committee presents a report of the items discussed and the actions approved at previous meetings.
The Audit Committees responsibility is one of oversight. Our management is responsible for preparing our consolidated financial statements, for maintaining internal controls, and for our compliance with laws and regulations, and the independent auditors are responsible for auditing our consolidated financial statements.
The Committee typically reviews and approves the internal and external audit plans. The Committee is directly responsible for the selection, appointment, compensation and oversight of our independent auditors (including the resolution of any disagreements between management and the auditors regarding financial reporting if disagreements occur) for the purpose of preparing or issuing an audit report or related work. We describe the role of the Committee in regard to the independent auditors, including consideration of rotation of the independent audit firm, in more detail on page 81. For work performed by the independent auditors, the Committee must pre-approve all audit engagement fees and terms, as well as all permitted non-audit engagements. The Committee (or delegate) pre-approves all audit services, audit-related services, and permitted non-audit services. The Committee considers whether providing audit services, audit-related services, and permitted non-audit services will impair the auditors independence.
22 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
CORPORATE GOVERNANCE
We describe the Committees procedures for the pre-approval of audit services, audit-related services, and permitted non-audit services on page 82. The Committee receives routine reports on finance, reserve adequacy, ethics, and internal and external audit.
The Committee has the authority to retain independent legal, accounting, economic, or other advisors. The Committee holds regular executive sessions with our management, the General Auditor, the Chief Ethics Officer, and the independent auditors. The independent auditors report directly to the Committee. The Committee appoints our General Auditor, who leads PNCs internal audit function and reports directly to the Committee. The Committee reviews the performance and approves the compensation of our General Auditor.
Under our corporate governance guidelines, Audit Committee members may serve on the audit committee of no more than three public companies, including PNC.
The Audit Committee has approved the report on page 83 as required under its charter and in accordance with SEC regulations.
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 23
CORPORATE GOVERNANCE
Nominating and Governance Committee
Chair | Other members: | |||
Donald J. Shepard |
Charles E. Bunch | |||
Kay Coles James | ||||
Anthony A. Massaro | ||||
Dennis F. Strigl | ||||
Thomas J. Usher | ||||
Michael J. Ward |
The Nominating and Governance Committee consists entirely of independent directors. When our Board meets on April 26, 2016, only independent directors will be appointed to the Committee.
Neither Mr. Massaro nor Mr. Usher will stand for re-election to the Board at the annual meeting and, following the annual meeting, neither will be a member of the Committee.
Our Board most recently approved the charter of the Nominating and Governance Committee on November 19, 2015, and it is available on our website.
At each in-person meeting of our full Board, the chair of the Committee presents a report of the items discussed and the actions approved at previous meetings. The primary purpose of our Nominating and Governance Committee is to assist our Board in promoting the best interests of PNC and its shareholders through the implementation of sound corporate governance principles and practices. The Committee also assists the Board by identifying individuals qualified to become Board members. The Committee recommends to the Board the director nominees for each annual meeting, and may also recommend the appointment of qualified individuals as directors between annual meetings.
In addition to its annual committee self-evaluation, the Nominating and Governance Committee oversees the annual evaluation of the performance of the Board and committees and reports to the Board on the evaluation results, as necessary or appropriate. The Committee annually reviews and recommends any changes to the Executive Committee charter.
How we evaluate directors and candidates. At least annually, the Committee assesses the skills, qualifications and experience of our directors and recommends a slate of nominees to the Board. From time to time, the Committee also considers whether to change the composition of our Board. In evaluating existing directors or new candidates, the Committee assesses the needs of the Board and the qualifications of the individual. Please see the discussion on pages 13 to 17 for more information on each of our current director nominees.
Our Board and its committees must satisfy SEC, NYSE, and other banking regulatory standards. At least a majority of our directors must be independent under the NYSE standards, however, our corporate governance guidelines require that a substantial majority (at least 2/3) of our directors be independent. We require a sufficient number of independent directors to satisfy the membership needs of committees that also require independence.
Beyond that, the Nominating and Governance Committee expects directors to gain a sound understanding of our strategic vision, our mix of businesses, and our approach to regulatory relations and risk management. The Board must possess a mix of qualities and skills to address the various risks facing PNC. For a discussion of our Boards oversight of risk, please see the section entitled Risk Committee, on pages 28 and 29.
The Committee has not adopted any specific, minimum qualifications for director candidates. When evaluating each director, as well as new candidates for nomination, the Committee considers the following Board-approved criteria:
| A sustained record of high achievement in financial services, business, industry, government, academia, the professions, or civic, charitable, or non-profit organizations |
| Manifest competence and integrity |
| A strong commitment to the ethical and diligent pursuit of shareholders best interest |
| The strength of character necessary to challenge managements recommendations and actions when appropriate and to confirm the adequacy and completeness of managements responses to such challenges to his or her satisfaction |
| Our Boards strong desire to maintain its diversity in terms of race and gender |
| Personal qualities that will help to sustain an atmosphere of mutual respect and collegiality among the members of our Board |
24 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
CORPORATE GOVERNANCE
The Committee also considers the diversity, age, skills, experience in the context of the current needs of the Board and its committees, meeting attendance and participation, and the value of a directors contributions to the effectiveness of our Board and its committees.
Although the Board has not adopted a formal policy on diversity, the Board recognizes the value of a diverse Board. Therefore, the Committee considers the diversity of directors in the context of the Boards overall needs. The Committee evaluates diversity in a broad sense, recognizing the benefits of demographic diversity, but also considering the breadth of diverse backgrounds, skills, and experiences that directors may bring to our Board.
How we identify new directors. The Nominating and Governance Committee may identify potential directors in a number of ways. The Committee may consider recommendations made by current or former directors or members of executive management. The Committee may also identify potential directors through contacts in the business, civic, academic, legal and non-profit communities. When appropriate, the Committee may retain a search firm to identify candidates.
In addition, the Committee will consider director candidates recommended by our shareholders for nomination at next years annual meeting. For the Committee to consider a director candidate for nomination, the shareholder must submit the recommendation in writing to the Corporate Secretary at our principal executive office. Each submission must include the information required under Director nomination process in Section 3 of our corporate governance guidelines found at www.pnc.com/corporategovernance and must be received by November 15, 2016.
The Committee will evaluate candidates recommended by a shareholder in the same manner as candidates identified by the Committee or recommended by others. The Committee will not consider any candidate with an obvious impediment to serving as one of our directors.
The Committee will meet to consider relevant information regarding a director candidate, in light of the Board approved evaluation criteria and needs of our Board. If the Committee does not recommend a candidate for nomination or appointment, or for more evaluation, no further action is taken. The chair of the Committee will later report this decision to the full Board. For shareholder-recommended candidates, the Corporate Secretary will communicate the decision to the shareholder.
If the Committee decides to recommend a candidate to our Board as a nominee for election at an annual meeting of shareholders or for appointment by our Board, the chair of the Committee will report that decision to the full Board. After allowing for a discussion, the full Board will vote on whether to nominate the candidate for election or appoint the candidate to the Board.
As our corporate governance guidelines describe, invitations to join the Board should come from the Presiding Director and the Chairman, jointly acting on behalf of our Board.
Shareholders who wish to directly nominate a director candidate at an annual meeting must do so in accordance with the procedures contained in our By-laws and should follow the instructions in the section entitled Shareholder proposals for 2017 annual meetingAdvance notice procedures on page 102.
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 25
CORPORATE GOVERNANCE
Personnel and Compensation Committee
Chair | Other members: | |||
Dennis F. Strigl |
Charles E. Bunch | |||
Paul W. Chellgren | ||||
Andrew T. Feldstein | ||||
Richard B. Kelson | ||||
Thomas J. Usher | ||||
Michael J. Ward |
The Personnel and Compensation Committee consists entirely of independent directors. The Committee membership is intended to satisfy the independence standards established by applicable federal income tax and securities laws, as well as NYSE standards. When our Board meets on April 26, 2016, only independent directors will be appointed to the Committee.
Neither Mr. Chellgren nor Mr. Usher will stand for re-election to the Board at the annual meeting and, following the annual meeting, neither will be a member of the Committee.
Our Board most recently approved the charter of the Committee on November 19, 2015, and it is available on our website.
The Committees principal purpose is to discharge our Boards oversight responsibilities relating to the compensation of our executive officers and other specified responsibilities related to personnel and compensation matters affecting PNC. The Committee may also evaluate and approve, or recommend for approval, benefit, incentive compensation, severance, equity-based or other compensation plans, policies, and programs. The Committee charter provides that approval of the compensation of the General Auditor and the Chief Risk Officer is made by the Audit Committee and the Risk Committee, respectively.
The Committee has the authority to retain independent legal, compensation, accounting, or other advisors. The charter provides the Committee with the sole authority to retain and terminate a compensation consultant acting on the Committees behalf, and to approve the consultants fees and other retention terms. The Committee retained an independent compensation consultant in 2015 and prior years. See Role of compensation consultants below.
The Committee also reviews the Compensation Discussion and Analysis (CD&A) section of the proxy statement with management. See the Compensation Committee Report on page 55. The CD&A begins on page 39. The Committee evaluates the relationship between risk management and our incentive compensation programs and plans. See Compensation and Risk on pages 56 and 57.
The Committee has responsibility for reviewing and evaluating the development of an executive management succession plan and for reviewing our workforce diversity objectives. The Committee reviews a detailed succession planning report at least annually. The materials typically include a discussion of the individual performance of executive officers as well as succession plans and development initiatives for other high potential employees. These materials provide necessary background and context to the Committee, and give each member a familiarity with the employees position, duties, responsibilities, and performance.
How the committee makes decisions. The Committee meets at least six times a year. Before each meeting, the chair of the Committee reviews the agenda, materials, and issues with members of our management and the Committees independent executive compensation consultant, as appropriate. The Committee may invite legal counsel or other external consultants to advise the Committee during meetings and preparatory sessions.
The Committee regularly meets in executive sessions without management present. At each in-person meeting of our full Board, the chair of the Committee presents a report of the items discussed and the actions approved at previous meetings. The chair provides these reports during an executive session of the Board. The Committee consults with independent directors before approving the CEOs compensation.
The Committee adopted guidelines for information that will be presented to the Committee. The guidelines contemplate, among other things, that any major changes in policies or programs be considered over the course of two separate Committee meetings, with any vote occurring at the later meeting.
The Committee reviews all of the elements of the compensation programs periodically and adjusts those programs as appropriate. Each year, the Committee makes decisions regarding the amount of annual compensation and equity-based or other longer-term compensation for our executive officers and other designated senior employees. For the most part, these decisions are made in the first quarter of each year, following the evaluation of the prior years performance.
26 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
CORPORATE GOVERNANCE
Delegations of authority. The Committee has delegated authority to management to make certain decisions or to take certain actions with respect to compensation or benefit plans or arrangements (other than those that are solely or predominantly for the benefit of executive officers).
For employee benefit, bonus, incentive compensation, severance, equity-based and other compensation or incentive plans and arrangements, the Committee delegated to our Chief Human Resources Officer (or her designee) the ability to adopt a new plan or arrangement or amend an existing one if:
| the decision is not expected to result in a material increase in incremental expense to PNC, defined as an expense that exceeds 5% of the relevant expense for that plan category, or |
| the change is of a technical nature or is otherwise not material. |
This delegation also includes authority to take certain actions to implement, administer, interpret, construe or make eligibility determinations under the plans and arrangements.
For grants of equity or equity-based awards, the Committee has delegated to our Chief Executive Officer and our Chief Human Resources Officer (or the designee of either) the responsibility to make decisions with respect to equity grants for individuals who are not designated by the Committee as executives, including the determination of participants and grant sizes, allocation of the pool from which grants will be made, establishment of the terms of such grants, approval of amendments to outstanding grants and exercise of any discretionary authority pursuant to the terms of the grants.
The Committee has also delegated to the Audit Committee (or a qualified subcommittee) and to a qualified subcommittee of the Risk Committee the authority to make equity-based grants and other compensation under applicable plans to the General Auditor and Chief Risk Officer, respectively.
Managements role in compensation decisions. Our executive officers, including our CEO and our Chief Human Resources Officer, often review information with the Committee during meetings and may present managements views or recommendations. The Committee evaluates these recommendations, generally in consultation with an independent compensation consultant retained by the Committee, who attends each meeting.
The chair of the Committee typically meets with management and an independent compensation consultant before each Committee meeting to discuss agenda topics, areas of focus, or outstanding issues. The chair schedules other meetings with the Committees compensation consultant without management present, as needed. Occasionally, management will schedule meetings with each Committee member to discuss substantive issues. For more complicated issues, these one-on-one meetings provide a dedicated forum for Committee members to ask questions outside of the meeting environment.
During Committee meetings, the CEO often reviews corporate and individual performance as part of the compensation discussions, and other members of executive management may be invited to speak to the Committee about specific performance or risk management. The Committee reviews any compensation decisions for the Chief Human Resources Officer and CEO in executive session, without either officer present for the discussion of their compensation. Any recommendations for CEO compensation are also discussed with the full Board, with no members of management present for the discussion.
Role of compensation consultants. The Committee has the sole authority to retain and terminate any compensation consultant directly assisting it. The Committee also has the sole authority to approve fees and other engagement terms. The Committee receives comparative compensation data from our management, from proxy statements and other public disclosures, and through surveys and reports prepared by compensation consultants.
The Committee retained Meridian Compensation Partners as its independent compensation consultant for 2015. In this capacity, Meridian reports directly to the Committee. In 2015, one or more representatives attended all of the in-person and telephonic meetings of the Committee, and met regularly with the Committee without members of management present. Meridian also reviewed meeting agendas and materials prepared by management.
Meridian and members of management assisted the Committee in its review of proposed compensation packages for our executive officers. For the 2015 performance year, Meridian prepared discussion materials for the compensation of the CEO, which were reviewed in executive session without any members of management present. Meridian also prepared other benchmarking reviews and pay for performance analyses for the Committee. PNC did not pay any fees to Meridian in 2015 other than in connection with work for the Committee.
The Committee evaluated whether the work of Meridian raised any conflict of interest. The Committee considered various factors, including six factors mandated by the SEC rules, and determined that no conflict of interest was raised by the work of Meridian described in this proxy statement.
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 27
CORPORATE GOVERNANCE
Our management retains other compensation consultants for its own use. In 2015, our management retained McLagan to provide certain market data in the financial services industry. It also uses Towers Watson, a global professional services firm, to provide, from time to time, various actuarial and management consulting services to us, including:
| Preparing specific actuarial calculations on values under our retirement plans |
| Preparing surveys of competitive pay practices |
| Analyzing our director compensation packages and providing reports to our management and the Boards Nominating and Governance Committee |
| Providing guidance on certain aspects of total rewards, talent management and other human resources initiatives |
Reports prepared by Towers Watson and McLagan that relate to executive compensation may also be shared with the Committee.
Compensation committee interlocks and insider participation. None of the current members of the Personnel and Compensation Committee are officers or employees or former officers of PNC or any of our subsidiaries. No PNC executive officer served on the compensation committee of another entity that employed an executive officer who also served on our Board. No PNC executive officer served as a director of an entity that employed an executive officer who also served on our Personnel and Compensation Committee.
Certain members of the Personnel and Compensation Committee, their immediate family members, and entities with which they are affiliated, were our customers or had transactions with us (or our subsidiaries) during 2015. Transactions that involved loans or commitments by subsidiary banks were made in the ordinary course of business and on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and did not involve more than the normal risk of collectability or present other unfavorable features and otherwise complied with regulatory restrictions on such transactions.
Please see Director and Executive Officer RelationshipsRegulation O policies and procedures, which begins on page 33, for more information.
Risk Committee
Chair | Other members: | |||||
Andrew T. Feldstein | Marjorie Rodgers Cheshire | Jane G. Pepper | ||||
William S. Demchak | Donald J. Shepard | |||||
Daniel R. Hesse | Lorene K. Steffes | |||||
Kay Coles James | ||||||
Anthony A. Massaro | ||||||
The Board performs its risk oversight function primarily through the Risk Committee, which includes both independent and management directors.
Mr. Massaro will not stand for re-election to the Board at the annual meeting as he has reached the mandatory retirement age set in PNCs corporate governance guidelines and, following the annual meeting, he will no longer be a member of the Committee.
Our Board most recently approved the charter of the Committee on November 19, 2015, and it is available on our website.
At each in-person meeting of our full Board, the chair of the Committee presents a report of the items discussed and the actions approved at previous meetings. The Committees purpose is to require and oversee the establishment and implementation of our enterprise-wide risk governance framework, including related policies, procedures, activities and the processes to identify, measure, monitor, and manage direct and indirect risks of PNC. Direct risks consist of credit risk, market risk (includes interest rate and price risk), liquidity risk, compliance risk (includes fiduciary risk) and operational risk (includes legal, operating, insurance, and technology risk). Indirect risks include business risk, strategic risk, model risk, and reputation risk. PNCs major financial risk exposures are the responsibility of the Audit Committee. The Risk Committee serves as the primary point of contact between our Board and the management-level committees dealing with risk management. The Committees responsibility is one of oversight, and the Committee has no duty to assure compliance with laws and regulations.
28 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
CORPORATE GOVERNANCE
The Committee receives regular reports on enterprise-wide risk management, credit risk, market and liquidity risk, operating risk, and capital management.
The Committee may also form subcommittees from time to time. The Committee has formed a subcommittee to assist in fulfilling the Committees oversight responsibilities with respect to technology risk, technology risk management, cybersecurity, information security, business continuity, and significant technology initiatives and programs.
The Committee appoints our Chief Risk Officer, who leads PNCs risk management function. The Committee reviews the performance and approves the compensation of our Chief Risk Officer.
The Risk Committee, along with the Personnel and Compensation Committee, each reviews the risk components of our incentive compensation plans. For a discussion of the relationship between compensation and risk, please see Compensation and Risk, beginning on page 56.
|
Meetings |
| ||||||||||||||||||||||||||||||
(1) | (2) | (1) | (3) | (1) | ||||||||||||||||||||||||||||
Audit |
l | l | l | l | 12 | |||||||||||||||||||||||||||
Nominating and Governance |
l | l | l | l | l | 5 | ||||||||||||||||||||||||||
Personnel and Compensation |
l | l | l | l | l | 6 | ||||||||||||||||||||||||||
Risk |
l | l | l | l | l | l | l | 8 |
Chair |
(1) | Designated as audit committee financial expert under SEC regulations |
(2) | Management director |
(3) | Presiding director (lead independent director) |
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 29
DIRECTOR AND EXECUTIVE OFFICER RELATIONSHIPS
30 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
DIRECTOR AND EXECUTIVE OFFICER RELATIONSHIPS
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 31
DIRECTOR AND EXECUTIVE OFFICER RELATIONSHIPS
` | ||||||||||||||||||||||||||||||||||
Personal or Family Relationships |
Deposit, Wealth Management and Similar Banking Products(1) | l | l | l | l | l | l | l | l | l | l | l | l | l | ||||||||||||||||||||
Credit Relationships(2) | l | l | l | l | l | l | l | l | l | l | l | |||||||||||||||||||||||
Charitable Contributions(3) | l | l | l | l | l | l | l | |||||||||||||||||||||||||||
Affiliated Entity Relationships |
Deposit, Wealth Management and Similar Banking Products(1) | l | l | l | l | l | l | l | l | |||||||||||||||||||||||||
Credit Relationships or Commercial Banking Products(4) | l | l | l | l | l | l | l |
(1) | Includes deposit accounts, trust accounts, certificates of deposit, safe deposit boxes, workplace banking, or wealth management products. |
(2) | Includes extensions of credit, including mortgages, commercial loans, home equity loans, credit cards, or similar products, as well as credit and credit-related products. |
(3) | Does not include matching gifts provided to charities personally supported by the director because under our Board guidelines matching gifts are not a material relationship and are not included in considering the value of contributions against our guidance. Matching gifts are capped at $5,000 and are included as other compensation in the director compensation table. |
(4) | Includes extensions of credit, including commercial loans, credit cards, or similar products, as well as credit-related products, and other commercial banking products, including treasury management, purchasing card programs, foreign exchange, and global trading services. |
32 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
DIRECTOR AND EXECUTIVE OFFICER RELATIONSHIPS
Regulation O policies and procedures
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 33
DIRECTOR AND EXECUTIVE OFFICER RELATIONSHIPS
Indemnification and advancement of costs
34 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
Related person transactions policy
Certain related person transactions
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 35
RELATED PERSON TRANSACTIONS
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The following table describes the components of director compensation in 2015:
Annual Retainer |
||||
Each Director |
$ | 67,500 | ||
Presiding Director |
$ | 30,000 | ||
Additional retainer for Chairs of Audit, Risk, and Personnel and Compensation Committees |
$ | 20,000 | ||
Additional retainer for Chair of Nominating and Governance Committee |
$ | 15,000 | ||
Additional retainer for Chair of Executive Committee |
$ | 10,000 | ||
Meeting Fees (Board) |
||||
Each meeting (except for quarterly scheduled telephonic meetings) |
$ | 1,500 | ||
Each quarterly scheduled telephonic meeting |
$ | 1,000 | ||
Meeting Fees (Committee/Subcommittee) |
||||
First six meetings |
$ | 1,500 | ||
All other meetings |
$ | 2,000 | ||
Equity-Based Grants |
||||
Value of 1,504 deferred stock units awarded as of April 28, 2015 |
$ | 137,481 |
36 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
DIRECTOR COMPENSATION
For the fiscal year 2015, we provided the following compensation to our non-employee directors:
Director Name | Fees Earned(a) | Stock Awards(b) | All
Other Compensation(c) |
Total | ||||||||||||
Richard O. Berndt* |
$ | 37,620 | - | $ | 20,455 | $ | 58,075 | |||||||||
Charles E. Bunch |
$ | 92,750 | $ | 137,481 | $ | 38,089 | $ | 268,320 | ||||||||
Paul W. Chellgren |
$ | 104,250 | $ | 137,481 | $ | 117,836 | $ | 359,567 | ||||||||
Marjorie Rodgers Cheshire |
$ | 123,250 | $ | 137,481 | $ | 2,027 | $ | 262,758 | ||||||||
Andrew T. Feldstein |
$ | 125,750 | $ | 137,481 | $ | 14,517 | $ | 277,748 | ||||||||
Kay Coles James |
$ | 96,750 | $ | 137,481 | $ | 48,079 | $ | 282,310 | ||||||||
Richard B. Kelson |
$ | 137,250 | $ | 137,481 | $ | 59,275 | $ | 334,006 | ||||||||
Anthony A. Massaro |
$ | 107,750 | $ | 137,481 | $ | 50,245 | $ | 295,476 | ||||||||
Jane G. Pepper |
$ | 110,250 | $ | 137,481 | $ | 63,532 | $ | 311,263 | ||||||||
Donald J. Shepard |
$ | 133,750 | $ | 137,481 | $ | 71,712 | $ | 342,943 | ||||||||
Lorene K. Steffes |
$ | 102,250 | $ | 137,481 | $ | 64,956 | $ | 304,687 | ||||||||
Dennis F. Strigl |
$ | 112,750 | $ | 137,481 | $ | 85,503 | $ | 335,734 | ||||||||
Thomas J. Usher |
$ | 130,250 | $ | 137,481 | $ | 110,942 | $ | 378,673 | ||||||||
George H. Walls, Jr.* |
$ | 37,620 | - | $ | 54,106 | $ | 91,726 | |||||||||
Gregory D. Wasson** |
$ | 46,380 | - | $ | 217 | $ | 46,597 | |||||||||
Helge H. Wehmeier* |
$ | 25,620 | - | $ | 62,409 | $ | 88,029 |
* | Mr. Berndt, Gen. Walls and Mr. Wehmeier served as directors through April 28, 2015. |
** | Mr. Wasson was appointed as a director on July 2, 2015. |
(a) | This column includes the annual retainers, additional retainers for chairs of standing committees and meeting fees earned for 2015. The amounts in this column also include the fees voluntarily deferred by the following directors under our Directors Deferred Compensation Plan, a non-qualified defined contribution plan: Paul W. Chellgren ($104,250); Marjorie Rodgers Cheshire ($49,300); Andrew T. Feldstein ($125,750); Jane G. Pepper ($27,563); Donald J. Shepard ($133,750); Lorene K. Steffes ($30,675); George H. Walls, Jr. ($37,620); and Gregory D. Wasson ($44,900). |
(b) | The dollar values in this column include the grant date fair value, under Financial Accounting Standards Board Accounting Standards Codification Topic 718, CompensationStock Compensation, of 1,504 deferred stock units awarded to each directors account under our Outside Directors Deferred Stock Unit Plan as of April 28, 2015, the date of grant. The closing stock price of PNC on the date of grant was $91.41 a share. See Note 13 in our Annual Report on Form 10-K for the year ended December 31, 2015 for more information. |
As of December 31, 2015, the non-employee directors listed in the table below had outstanding stock units in the following amounts: |
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 37
DIRECTOR COMPENSATION
Director Name | Stock Units | |||
Charles E. Bunch |
17,429 | |||
Paul W. Chellgren |
59,738 | |||
Marjorie Rodgers Cheshire |
1,935 | |||
Andrew T. Feldstein |
6,079 | |||
Kay Coles James |
22,466 | |||
Richard B. Kelson |
28,111 | |||
Anthony A. Massaro |
24,745 | |||
Jane G. Pepper |
29,320 | |||
Donald J. Shepard |
34,275 | |||
Lorene K. Steffes |
29,646 | |||
Dennis F. Strigl |
29,884 | |||
Thomas J. Usher |
54,163 | |||
Gregory D. Wasson |
428 |
None of our non-employee directors had any unvested stock awards as of December 31, 2015. |
(c) | This column includes income under the Directors Deferred Compensation Plan, the Outside Directors Deferred Stock Unit Plan, and the Mercantile Bankshares Corporation Deferred Compensation Plan (for Mr. Shepard only) as follows: Richard O. Berndt ($15,455); Charles E. Bunch ($33,089); Paul W. Chellgren ($117,836); Marjorie Rodgers Cheshire ($2,027); Andrew T. Feldstein ($9,517); Kay Coles James ($43,079); Richard B. Kelson ($54,275); Anthony A. Massaro ($50,245); Jane G. Pepper ($58,532); Donald J. Shepard ($66,712); Lorene K. Steffes ($61,293); Dennis F. Strigl ($85,503); Thomas J. Usher ($105,942); George H. Walls, Jr. ($49,106); Gregory D. Wasson ($217); and Helge H. Wehmeier ($57,409). This column also includes the dollar amount of matching gifts made by us in 2015 to charitable organizations. No director received any incidental benefits. No non-employee director had incremental cost to PNC for personal use of our corporate aircraft in 2015. |
38 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
This section (CD&A) explains our executive compensation philosophy, describes our compensation programs and reviews compensation decisions for the following named executive officers (NEOs):
Name | Title | |
William S. Demchak |
Chairman, President and Chief Executive Officer | |
Robert Q. Reilly |
Executive Vice President and Chief Financial Officer | |
Michael P. Lyons |
Executive Vice President and Head of Corporate and Institutional Banking | |
E William Parsley, III |
Executive Vice President, Chief Investment Officer and Treasurer | |
Joseph C. Guyaux* |
Senior Vice Chairman and CEO and President of PNC Mortgage |
* | Effective January 31, 2015, Mr. Guyaux became the CEO and President of PNC Mortgage. Prior to that date, Mr. Guyaux was our Chief Risk Officer. |
|
In 2015, we delivered consistent results in a challenging operating environment, with net income of $4.1 billion (8% over budget) and diluted earnings per share of $7.39 (7.4% over budget) we have earned at least $1 billion in net income during each of the past eleven quarters | |
|
Our annual total shareholder return (TSR) was the second-highest in our peer group and our three-year TSR was the highest in our peer group our stock price also reached an all-time high in 2015 | |
|
We diversified and improved our sources of revenue by successfully growing noninterest income and allowing our net interest income to decline rather than adding riskier loans in a continued low interest rate environment | |
|
We continued to manage our costs, reducing our expenses for the third year in a row and exceeding our revised continuous improvement goal of $500 million in expense savings (up from our initial 2015 goal of $400 million) | |
|
We strengthened our capital throughout the year and returned capital to our shareholders through both a common stock dividend increase and share repurchases |
We review various performance metrics with our Boards Personnel and Compensation Committee each quarter and after the end of our performance year. For the key metrics listed below, we compare this years performance to how we performed last year, how we performed against this years budget, and how we performed against peers (see page 50 for the companies in our 2015 peer group). We also provide information to the Committee on other important capital, risk, expense and business metrics, some of which are shown below. For a general explanation of the metrics that we use to evaluate our compensation program, and our rationale for using them, see page 45.
KEY PERFORMANCE METRICS | 2015 actual(1) |
2014 actual(1) |
2015 budget(2) |
|||||||||
Net interest income (in millions) |
$ | 8,278 | $ | 8,525 | $ | 8,401 | ||||||
Noninterest income (in millions) |
$ | 6,947 | $ | 6,850 | $ | 6,660 | ||||||
Diluted earnings per common share |
$ | 7.39 | $ | 7.30 | $ | 6.88 | ||||||
Return on common equity (without goodwill) |
12.22% | 12.84% | 11.61% | |||||||||
Return on assets |
1.17% | 1.28% | 1.10% | |||||||||
Efficiency ratio(3) |
62.15% | 61.71% | 63.08% | |||||||||
2015 actual(1) |
2014 actual(1) |
|||||||||||
Annual total shareholder return |
6.81% | 20.32% | ||||||||||
Tangible book value per share |
$ 63.65 | $ | 59.88 | |||||||||
Tier 1 risk-based capital ratio |
12.00% | 12.60% | ||||||||||
Return on economic capital vs. cost of capital |
5.06% | 5.02% |
These tables include non-GAAP financial measures. See Annex A for additional information.
(1) | To the extent permitted, the amounts may be adjusted to omit, among other things, the effect of extraordinary items (as such term is used under generally accepted accounting principles), discontinued operations, and merger integration and |
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 39
COMPENSATION DISCUSSION AND ANALYSIS
acquisition costs. The results also may include adjustments for select categories of events and transactions that are viewed as being outside of our ongoing management of the business, some categories of which are provided in footnote (b) on page 60 with respect to incentive performance units. When comparing performance metrics to our peers, we adjust their results comparably. We did not adjust PNCs amounts in either 2014 or 2015, other than adjustments for the sale of Visa shares in each year, which impacted our return on economic capital. |
(2) | 2015 budget results were lower than 2014 actual results for several reasons, including, without limitation, the continued impact of the challenging economic environment on business results and our intent to manage balance sheet risk by avoiding loans and other assets that are outside of our enterprise risk appetite. The 2015 budget also included the impact of the continued, expected decrease in income recognized over time from the impaired loans we acquired through prior acquisitions (sometimes referred to purchase accounting accretion). |
(3) | As efficiency ratio compares our noninterest expense to revenue, a lower percentage is better. |
The Committee also reviewed PNCs performance against key strategic objectives. Despite a challenging revenue environment, management continued to drive growth throughout the franchise and make strategic investments to position PNC for long-term success.
PERFORMANCE AGAINST STRATEGIC OBJECTIVES | ||||
Drive growth in new and underpenetrated markets |
|
In the Southeast region, we increased 2015 market revenue and noninterest income from the prior year
| ||
|
Continued growth across most lines of business in the Southeast
| |||
Capture more investable assets |
|
Increased retail brokerage fees and asset management fees year over year
| ||
|
Increased total noninterest income by 5% year over year, primarily driven by growth in consumer service fees and brokerage consistent with our strategy of growing share of wallet
| |||
Redefine the retail banking business |
|
Continued to focus on transforming the customer experience 52% of consumer customers used non-teller channels for the majority of their transactions (46% in 2014) and ATM and mobile deposits accounted for 43% of total deposit transactions (35% in 2014)
| ||
|
More than 375 branches now operate under the universal model (up from 156 branches at the end of 2014)
| |||
Build a stronger mortgage business |
|
PNC Bank complied with the terms of the 2011 residential mortgage consent order issued by the OCC to several banks and received notification that the OCC had terminated that order with respect to PNC Bank
| ||
|
Increased mortgage originations by 11% over the prior year
| |||
Bolster critical infrastructure and streamline core processes |
|
Exceeded continuous improvement goal of $500 million in expense savings
| ||
|
Noninterest expense decreased from 2014 the third straight year we decreased expenses
|
Compensation philosophy and principles
COMPENSATION PRINCIPLES |
1. Pay for performance |
2. Align executive compensation with long-term shareholder value creation |
3. Provide competitive compensation opportunities to attract, retain, and motivate executives |
4. Encourage the focus on the long-term success of PNC and discourage excessive risk-taking |
40 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
WHAT WE DO | ||
Pay for performance. Most executive pay is at risk and not guaranteed. Our standard long-term equity incentive awards are 100% performance-based. | ||
Discourage excessive risk taking. Multiple performance measures and deferral periods, along with robust stock ownership and retention policies, clawback and forfeiture provisions help discourage excessive risk taking. | ||
Engage with shareholders. We actively engage with our shareholders on governance and compensation issues. | ||
Require strong ownership and retention of equity. We have adopted strong share ownership guidelines, and all of our NEOs currently comply with those guidelines. Executives are subject to additional retention requirements as equity grants vest. | ||
Clawback. Our clawback policy permits recapture of prior incentive compensation awarded based on materially inaccurate performance metrics and canceling all or a portion of long-term incentive awards based on performance against risk metrics, risk-related actions or detrimental conduct. The amount of any clawback applied will be publicly disclosed as appropriate. | ||
Limit perquisites. We believe that perquisites should be modest and provide business-related benefits and we generally limit them to $10,000 in value with an additional $10,000 allowance for personal aircraft usage ($100,000 allowance for personal aircraft usage by the CEO). Executives are asked to reimburse the value of perquisites over that amount, if legally permissible. | ||
Provide reasonable post-employment benefits. We have closed our legacy supplemental defined benefit plans to new entrants and we require shareholder approval on change in control benefits above a certain level. | ||
Retain an independent compensation consultant. The Personnel and Compensation Committee retains an independent compensation consultant that provides no other services to PNC. |
WHAT WE DONT DO | ||
û | No tax gross-ups. Since 2009, we have not entered into any new agreements that permit excise tax gross-ups upon a change in control. We also do not provide tax gross-ups on our perquisites. | |
û | No change in control agreements without shareholder approval. Without shareholder approval, we will not enter into new change in control arrangements that would pay more than 2.99 times base and bonus in the year of termination. | |
û | No single trigger acceleration of equity. Equity grants to our senior executives require a double trigger to vest upon a change in control the change in control must occur and there must be a qualifying termination of employment. | |
û | No repricing of options. Our equity plan does not permit us to reprice stock options that are out-of-the-money, without shareholder approval. See pages 84 94 for a discussion of our equity plan. | |
û | No employment agreements for NEOs. Our named executives do not have individual employment agreements. They serve at the will of the Board, which enables us to set the terms of any termination of employment, preserving the Committees flexibility to consider the facts and circumstances of any particular situation. | |
û | No hedging, pledging, or short sales. We do not permit any of our directors or employees to hedge PNC securities, or short-sell PNC securities. In addition, we do not permit our directors or executive officers to pledge PNC securities. |
Stakeholder engagement and impact of 2015 say-on-pay vote
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 41
COMPENSATION DISCUSSION AND ANALYSIS
The total compensation target for each NEO generally consists of the following components:
Our Committee believes that annual compensation should include a substantial performance-based component that varies from year to year. For information on how our Committee evaluates performance to determine the annual incentive payout, see the discussion starting on page 44.
We want our NEOs to receive a significant portion of compensation in equity that pays out, if at all, over several years. To achieve that goal, at least 50% of the total compensation target is allocated to long-term equity awards. For our CEO (and one other NEO), this proportion increases to 60%. The remainder of the annual incentive payout is delivered as an annual cash incentive award.
The Committee believes that these components collectively provide an appropriate balance between fixed and variable amounts, short-term and long-term duration of payouts, and cash and equity-based awards.
42 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
Under our current programs, each NEO generally receives their long-term incentive award in two primary forms that are equally weighted by dollar value the incentive performance unit, which measures PNC performance over a three-year period, and the performance-based restricted share unit (RSU), which vests in equal annual installments over a four-year period. In addition to the regular incentive performance unit, Mr. Parsley received an incentive performance unit tied to the performance of our Asset & Liability Management (ALM) function, which he manages. Each long-term incentive award also contains forfeiture provisions that can reduce or eliminate payouts if PNC does not meet risk-based criteria.
All of these equity-based awards are made under PNCs shareholder-approved 2006 Incentive Award Plan. The table below summarizes the material terms and conditions of these awards.
Incentive performance units | Performance-based RSUs | ALM incentive performance units | ||||||||||||||
Who receives an award? |
All NEOs | All NEOs | Mr. Parsley | |||||||||||||
How do we measure performance? |
2016-2018 (three years)
Vesting occurs at the end of the period
Performance based on absolute and relative metrics
- 50% based on our return on common equity without goodwill (ROCE) compared to our cost of common equity (COCE)
- 50% based on our EPS growth rank against our peers
0-125% of target award
Units payable in PNC common stock up to target (0-100%) and payable in cash above target (100-125%) |
2016-2019 (four years)
Vesting occurs in annual installments
Vested amount adjusted based on PNCs annual total shareholder return (TSR)
Aligns executives interests directly with the interests of shareholders, and has a considerably stronger tie to performance than time-based restricted shares while also supporting retention |
2016-2018 (three years)
Vesting occurs at the end of the period
PNCs ALM performance compared to a benchmark performance index
0-200% of target award
Units payable in cash | |||||||||||||
75-125% of target award
Units payable in PNC common stock |
||||||||||||||||
What is the payout? |
The payout percentage grid ranges are listed below. Actual payout percentages will be interpolated taking into account how close the performance metric or peer group rank is to the actual metric or rank above and below. For example, if EPS Growth Rank is closer to 5th than 6th, the actual payout percentage will be closer to 115% than 105%. If ROCE as a % of COCE is between 105% and 110%, the payout percentage will be between 100% and 125%. | |||||||||||||||
ROCE as % of COCE |
Payout % |
EPS |
Payout % | Annual TSR |
Payout % |
ALM vs. index |
Payout % | |||||||||
>= 110% | 125% | 1 | 125% | >= +25% | 125% | >= +40 basis points | 200% | |||||||||
105% | 100% | 2 | 125% | 0% | 100% | +20 basis points | 150% | |||||||||
100% | 75% | 3 | 125% | <= -25% | 75% | 0 to -25 basis points | 100% | |||||||||
75% | 50% | 4 | 120% | -35 basis points | 40% | |||||||||||
<= 50% | 0% | 5 | 115% | <= -40 basis points | 0% | |||||||||||
6 | 105% | |||||||||||||||
7 | 95% | |||||||||||||||
8 | 80% | |||||||||||||||
9 | 60% | |||||||||||||||
10 | 40% | |||||||||||||||
11 | 0% | |||||||||||||||
12 | 0% | |||||||||||||||
How do we adjust for risk? |
If PNC does not meet or exceed the required Tier 1 risk-based capital ratio for well-capitalized institutions in a specific year, the award will be forfeited.
If our return on economic capital does not exceed our cost of capital for the year, the Committee may reduce or eliminate the award. |
|||||||||||||||
What are other important provisions? |
No voting rights
Dividends will accrue until vesting and be paid out in cash, adjusted for actual performance |
No voting rights
No accrued dividends |
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 43
COMPENSATION DISCUSSION AND ANALYSIS
Other compensation and benefits
In addition to the components included in the total compensation target outlined above, our executive compensation program also includes the following components:
Perquisites |
Few perquisites are permitted and they are limited in dollar value | |
PNC requests reimbursement if executives exceed the prescribed dollar value | ||
No tax gross-ups permitted | ||
Change in Control Arrangements |
Allow for continuity of management with respect to a change in control | |
Provide compensation when an executive officer is involuntarily terminated following a change in control | ||
Equity will not be accelerated on a change in control there must also be a qualifying termination of employment | ||
Described in more detail on pages 73 to 78 | ||
Health and Retirement Plans |
Promote health and wellness | |
Help employees achieve financial security after retirement |
Evaluating performance
44 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
The following chart describes some of the key metrics that the Committee evaluates, and a brief explanation of why we use them.
Category |
Metric | Why we use it | ||
Capital and risk |
Economic capital | Economic capital represents the amount of resources that we should hold to guard against unexpected losses. Economic capital serves as a common currency of risk that allows us to compare different risks on a similar basis across our company.
| ||
Return on economic capital (ROEC) vs. cost of capital |
ROEC is our annualized net income divided by our economic capital. Comparing our profits to how much capital we are holding against potential losses helps to provide a risk-based evaluation of profitability. When we compare ROEC to our cost of capital that is, a minimum rate of return on the overall capital that we hold it provides a good measure of the excess value that we provide to shareholders.
| |||
Tier 1 risk-based capital ratio |
The Tier 1 risk-based capital ratio is used by banking regulators to assess the capital adequacy and financial strength of a bank. This capital ratio must exceed 6% for PNC to be considered well-capitalized by our regulators.
| |||
Expenses |
Efficiency ratio | The efficiency ratio helps us evaluate how efficiently we operate our business. The ratio divides our noninterest expense (such as compensation and benefits, occupancy costs, equipment, and marketing) by our revenue. In general, a smaller ratio is better. A banks efficiency ratio will be affected, however, by its particular mix of businesses.
| ||
Profitability |
Earnings per share (EPS) |
EPS is a common metric used by investors to evaluate the profitability of a company. It shows the earnings (net income) we make on each share of stock that we issue.
| ||
EPS growth | While EPS represents a specific dollar amount, EPS growth represents the percentage growth of EPS since last year. EPS growth helps us to compare our annual earnings strength to our peers.
| |||
Return on assets (ROA) |
Investors often evaluate banks by their asset size, with loans and investment securities making up the largest components of assets. ROA is our annualized net income divided by our average assets and represents how efficiently we use assets to generate profit.
| |||
Return on common equity |
Return on common equity is our annualized net income attributable to our common shareholders divided by average common shareholders equity. It shows how efficiently we use our investor funds (common equity) to generate profit.
| |||
Revenue |
Net interest income | Net interest income measures the revenue generated from lending and other activities minus all interest expenses (such as interest paid on deposits and borrowing). It is a good indicator of performance for banks given the importance of interest earning assets and interest bearing sources of funds.
| ||
Noninterest income | Noninterest income measures the fees and other revenue we derive from our businesses (other than interest income). A healthy mix of net interest income and noninterest income provides diverse earnings streams and lessens a banks reliance on the interest rate environment.
| |||
Valuation |
Tangible book value per share |
This measure takes our total tangible common shareholders equity (intangible assets, such as goodwill, are excluded) and divides that by the number of shares outstanding. This provides investors with an objective valuation method and allows them to compare relative values of similar companies.
| ||
Total shareholder return (TSR) |
TSR is a common metric used to show the total return to an investor in our common stock. Annual TSR takes into account the change in stock price from the beginning to the end of the year, as well as the reinvestment of any dividends issued throughout the year.
|
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 45
COMPENSATION DISCUSSION AND ANALYSIS
For 2015, the Committee set the following compensation targets for our NEOs:
William S. Demchak |
Robert Q. Reilly |
Michael P. Lyons |
E William Parsley, III(1) |
Joseph C. Guyaux |
||||||||||||||||
Base salary |
$ | 1,100,000 | $ | 500,000 | $ | 700,000 | $ | 500,000 | $ | 620,000 | ||||||||||
Incentive compensation target(2) |
$ | 9,900,000 | $ | 3,000,000 | $ | 4,800,000 | $ | 5,500,000 | $ | 2,480,000 | ||||||||||
Annual cash incentive portion |
$ | 3,300,000 | $ | 1,250,000 | $ | 1,500,000 | $ | 1,000,000 | $ | 930,000 | ||||||||||
Long-term incentive portion |
$ | 6,600,000 | $ | 1,750,000 | $ | 3,300,000 | $ | 4,500,000 | $ | 1,550,000 | ||||||||||
Total compensation target |
$ | 11,000,000 | $ | 3,500,000 | $ | 5,500,000 | $ | 6,000,000 | $ | 3,100,000 |
(1) | Mr. Parsleys long-term incentive target includes two anticipated grants the grant of equity-based awards that all other NEOs would otherwise receive (valued at $1,500,000) and a separate grant of incentive performance units related to the management of our Asset & Liability Management (ALM) unit, valued at $3,000,000. Please see page 63 for a discussion of Mr. Parsleys ALM units. |
(2) | For the 2015 performance year, the Committee approved increases in incentive compensation targets for Mr. Demchak (from $8,400,000 to $9,900,000) and Mr. Parsley (from $5,000,000 to $5,500,000). The Committee approved these increases based on the performance, skills and experience of the executive, as well as changes in market information for similar executives at other financial institutions. |
46 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
2015 incentive compensation decisions | William S. Demchak |
Robert Q. Reilly |
Michael P. Lyons |
E William Parsley, III(1) |
Joseph C. Guyaux |
|||||||||||||||
Incentive compensation target |
$ | 9,900,000 | $ | 3,000,000 | $ | 4,800,000 | $ | 5,500,000 | $ | 2,480,000 | ||||||||||
Incentive compensation awarded |
$ | 11,900,000 | $ | 3,300,000 | $ | 6,100,000 | $ | 6,100,000 | $ | 2,880,000 | ||||||||||
Annual incentive award (cash) |
$ | 4,100,000 | $ | 1,400,000 | $ | 2,020,000 | $ | 1,300,000 | $ | 1,130,000 | ||||||||||
Long-term incentive award (equity-based) |
$ | 7,800,000 | $ | 1,900,000 | $ | 4,080,000 | $ | 4,800,000 | $ | 1,750,000 |
(1) | Mr. Parsleys incentive compensation award includes two grants the grant of equity-based awards that all other NEOs would otherwise receive (valued at $1,800,000) and a separate grant of incentive performance units related to the management of our Asset & Liability Management (ALM) unit, valued at $3,000,000. Please see page 63 for a discussion of Mr. Parsleys ALM units. |
The amounts shown in the table above differ from the amounts reflected in the Summary compensation table on page 58. In accordance with SEC regulations, that table shows the long-term equity-based incentives granted in 2015 based on 2014 performance.
Proxy statement disclosure | 2015 performance year | 2014 performance year | ||
2015 incentive compensation decisions table (above) |
Annual incentive (cash)
Long-term incentive (equity-based) |
|||
Summary compensation table (page 58) | Annual incentive (cash) |
Long-term incentive (equity-based) |
The charts below show the base salary for 2015 for each NEO, and the annual cash incentive and long-term incentive awarded in 2016 for 2015 performance. The bar surrounding each circle shows the amount of total compensation that is variable and at-risk.
WILLIAM S. DEMCHAK CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER | ||
2015 KEY ACHIEVEMENTS | ||
As our CEO, Mr. Demchak continued to deliver outstanding, consistent performance and leadership in a difficult economic environment by executing well against our strategic priorities.
Delivered strong returns to our investors, with an annual total shareholder return (TSR) of 6.81%, placing us second among our peers.
Grew the franchise strategically without departing from our desired risk appetite through purposeful loan and deposit growth, and a continued increase in our fee income.
Maintained a strong, well-positioned balance sheet and returned more capital to shareholders through stock repurchases and higher dividends.
Reduced expenses year over year, marking the third straight year of declining expenses.
Despite a challenging revenue environment, continued to make strategic investments to position PNC for long-term success, including significant upgrades to our technology infrastructure, transforming the retail bank, and building a leading banking franchise in our underpenetrated markets. The Committee also noted Mr. Demchaks consistent strong performance as CEO since his appointment in April 2013, and that the compensation decisions for 2015 reflected, in part, pay commensurate with the performance, skills, and experience of the CEO of a large bank holding company. |
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 47
COMPENSATION DISCUSSION AND ANALYSIS
ROBERT Q. REILLY EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER | ||
2015 KEY ACHIEVEMENTS | ||
As CFO, Mr. Reilly provided effective supervision of major internal financial and accounting functions and continued to play an integral part in our achievement of financial priorities, including exceeding our continuous improvement goal of $500 million in cost savings and decreasing our overall expenses year over year.
Continued to strengthen the linkages between our strategic planning, budgeting, and Comprehensive Capital Analysis and Review (CCAR) processes.
Served as primary spokesperson with investors, the media and the investment community and continued to support our reputation with those stakeholders. |
||
MICHAEL P. LYONS EXECUTIVE VICE PRESIDENT AND HEAD OF CORPORATE AND INSTITUTIONAL BANKING | ||
2015 KEY ACHIEVEMENTS | ||
As the head of our Corporate & Institutional Banking segment, Mr. Lyons continued to lead a major business that contributed approximately 36% of our revenue and 49% of our net income in 2015.
Delivered strong financial results, with record levels of adjusted pre-provision net revenue and fee income as a percentage of total revenue.
Achieved loan and deposit growth while maintaining our desired risk appetite and credit quality.
Continued to execute on cross-selling opportunities and new revenue initiatives, with record new clients in the Southeast, while successfully managing expenses. |
||
48 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
E WILLIAM PARSLEY, III EXECUTIVE VICE PRESIDENT, CHIEF INVESTMENT OFFICER AND TREASURER | ||
2015 KEY ACHIEVEMENTS | ||
As Chief Investment Officer and Treasurer, Mr. Parsley effectively manages our assets and liabilities, invests PNCs balance sheet, oversees our broker-dealer activities, manages our alternative investments and leads our asset resolution efforts.
In 2015, he continued to deliver outstanding performance on our core investment portfolio while continuing to improve the credit quality of the portfolio and enhancing our firms liquidity and capital profile.
Partnered successfully with the Independent Risk Management and Finance functions to improve the evaluation and reporting of risks across the entire balance sheet.
Continued to make significant improvements to the CCAR process. |
||
JOSEPH C. GUYAUX SENIOR VICE CHAIRMAN AND CEO AND PRESIDENT OF PNC MORTGAGE | ||
2015 KEY ACHIEVEMENTS | ||
In 2015, Mr. Guyaux successfully transitioned from our Chief Risk Officer position to the CEO of our Mortgage business.
Helped PNC Bank satisfy all of the requirements of the residential mortgage consent order issued by the OCC in 2011, which was terminated in 2015.
Continued to make solid progress in the acquisition of mortgage servicing rights, and the integration of our home equity and mortgage businesses. |
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 49
COMPENSATION DISCUSSION AND ANALYSIS
Compensation policies and practices
Peer Group Company | Ticker Symbol |
Peer | Assets (in billions) |
Peer | Revenue (in billions) |
Peer | Market (in billions) |
|||||||||||||||||||
Bank of America Corporation |
BAC | JPM | $ | 2,351.7 | JPM | $ | 93.5 | WFC | $ | 276.8 | ||||||||||||||||
BB&T Corporation |
BBT | BAC | $ | 2,144.3 | WFC | $ | 86.1 | JPM | $ | 241.9 | ||||||||||||||||
Capital One Financial Corporation |
COF | WFC | $ | 1,787.6 | BAC | $ | 82.5 | BAC | $ | 174.7 | ||||||||||||||||
Fifth Third Bancorp |
FITB | USB | $ | 421.9 | COF | $ | 23.4 | USB | $ | 74.5 | ||||||||||||||||
JPMorgan Chase & Co. |
JPM | PNC | $ | 358.5 | USB | $ | 20.1 | PNC | $ | 48.0 | ||||||||||||||||
KeyCorp |
KEY | COF | $ | 334.0 | PNC | $ | 15.2 | COF | 38.1 | |||||||||||||||||
M&T Bank Corporation |
MTB | BBT | $ | 209.9 | BBT | $ | 9.6 | BBT | $ | 29.5 | ||||||||||||||||
Regions Financial Corporation |
RF | STI | $ | 190.8 | STI | $ | 8.0 | STI | $ | 21.8 | ||||||||||||||||
SunTrust Banks, Inc. |
STI | FITB | $ | 141.1 | FITB | $ | 6.5 | MTB | $ | 19.3 | ||||||||||||||||
U.S. Bancorp |
USB | RF | $ | 126.1 | RF | $ | 5.4 | FITB | $ | 15.8 | ||||||||||||||||
Wells Fargo & Company |
WFC | MTB | $ | 122.8 | MTB | $ | 4.7 | RF | $ | 12.5 | ||||||||||||||||
KEY | $ | 95.1 | KEY | $ | 4.2 | KEY | $ | 11.0 |
50 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
Officer/Category | Share ownership (base requirement) |
Base requirement (value as of 12/31/2015)(1) |
Ongoing retention requirement |
|||||||||
President and Chief Executive Officer |
125,000 | $11,913,750 | 33% | |||||||||
Management Executive Committee and Other Corporate Executive Group (CEG) Members(2) |
15,000 - 25,000 | $ | 1,429,650 - $2,382,750 | 25% | ||||||||
Executive Officers (non-CEG Members) | 5,000 | $476,550 | 10% |
(1) | Value based on PNC closing price of $95.31 as of December 31, 2015. |
(2) | The CEG includes our CEO, our other NEOs, and certain other senior-level executives. |
A summary of PNCs clawback and incentive compensation adjustment policy is included in the table below.
Provision | Explanation | Eligible Compensation Elements |
Applicable Employee Population | |||
Clawback Inaccurate Metrics |
Applies to incentive compensation awarded as the result of materially inaccurate performance metrics (see below for additional details) | All incentive compensation vested or unvested | NEOs and other senior leaders | |||
Negative Adjustments Risk Metrics Performance |
May apply when there is less than desired performance against corporate or business unit risk metrics, as applicable | All unvested long-term incentive compensation | ||||
Clawback Detrimental Conduct |
Applies in the following instances:
when an individual engages in competitive activity without prior consent either as an employee of PNC or for one year after employment
when an individual commits fraud, misappropriation or embezzlement
when an individual is convicted of a felony |
All unvested long-term incentive compensation | All equity recipients | |||
Negative Adjustments Risk-Related Actions |
May apply when an individuals actions, or the failure to act, either as an individual or a supervisor, demonstrates a failure to provide appropriate consideration of risk (see below for additional details) |
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 51
COMPENSATION DISCUSSION AND ANALYSIS
52 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 53
COMPENSATION DISCUSSION AND ANALYSIS
54 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
We have reviewed and discussed the Compensation Discussion and Analysis with PNCs management, and based on our review and discussions, we recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.
The Personnel and Compensation Committee of the Board of Directors of The PNC Financial Services Group, Inc.
Dennis F. Strigl, Chair
Charles E. Bunch
Paul W. Chellgren
Andrew T. Feldstein
Richard B. Kelson
Thomas J. Usher
Michael J. Ward
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 55
This section explains how we consider risk at PNC, and the relationship between risk management, performance, and compensation. We also discuss the risk reviews presented to our Boards Personnel and Compensation Committee, and the methodology we use to assess the potential risks in our incentive compensation plans.
Enterprise risk appetite statement
We manage our risk appetite to optimize long-term shareholder value while supporting our employees, customers, and communities. In doing so, we:
1. | Achieve our business objectives and protect our brand by accepting risks that are understood, quantifiable, and analyzed through all phases of the economic cycle |
2. | Earn trust and loyalty from all stakeholders including employees, customers, communities, and shareholders |
3. | Reward individual and team performance by taking into account risk discipline and performance measurement |
4. | Practice disciplined capital and liquidity management so that the firm can operate effectively through all economic cycles |
56 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
COMPENSATION AND RISK
Risk review of compensation plans
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 57
Name & Principal Position | Year | Salary ($)(a) |
Stock Awards ($)(b) |
Non-Equity Incentive Plan Compensation ($)(c) |
Change in Pension Value & Nonqualified Deferred Compensation Earnings ($)(d) |
All Other Compensation ($)(e) |
Total ($) |
|||||||||||||||||||||
William S. Demchak |
2015 | $ | 1,100,000 | $ | 6,959,910 | $ | 4,100,000 | $ | 393,715 | $ | 165,501 | $ | 12,719,126 | |||||||||||||||
Chairman, President |
2014 | $ | 1,089,615 | $ | 5,999,978 | $ | 3,540,000 | $ | 650,626 | $ | 57,685 | $ | 11,337,904 | |||||||||||||||
& Chief Executive Officer |
2013 | $ | 922,115 | $ | 3,863,752 | $ | 3,083,333 | $ | 53,668 | $ | 59,235 | $ | 7,982,103 | |||||||||||||||
Robert Q. Reilly |
2015 | $ | 500,000 | $ | 1,874,944 | $ | 1,400,000 | $ | 193,677 | $ | 43,344 | $ | 4,011,965 | |||||||||||||||
Executive Vice President & |
2014 | $ | 500,000 | $ | 1,549,936 | $ | 1,375,000 | $ | 316,836 | $ | 60,922 | $ | 3,802,694 | |||||||||||||||
Chief Financial Officer |
2013 | $ | 475,000 | $ | 1,189,642 | $ | 1,075,000 | $ | 35,169 | $ | 35,327 | $ | 2,810,138 | |||||||||||||||
Michael P. Lyons |
2015 | $ | 700,000 | $ | 4,019,824 | $ | 2,020,000 | $ | 22,953 | $ | 6,754 | $ | 6,769,531 | |||||||||||||||
Executive Vice President & Head of |
2014 | $ | 700,000 | $ | 4,079,882 | $ | 1,980,000 | $ | 21,677 | $ | 6,577 | $ | 6,788,136 | |||||||||||||||
Corporate & Institutional Banking |
2013 | $ | 700,000 | $ | 4,555,912 | $ | 2,020,000 | $ | 21,411 | $ | 2,154 | $ | 7,299,477 | |||||||||||||||
E William Parsley, III |
2015 | $ | 500,000 | $ | 4,549,900 | $ | 1,300,000 | $ | 50,634 | $ | 22,108 | $ | 6,422,642 | |||||||||||||||
Executive Vice President, Chief |
2014 | $ | 500,000 | $ | 4,574,917 | $ | 1,050,000 | $ | 164,669 | $ | 10,200 | $ | 6,299,786 | |||||||||||||||
Investment Officer & Treasurer |
2013 | $ | 500,000 | $ | 4,194,598 | $ | 1,075,000 | | $ | 5,577 | $ | 5,775,175 | ||||||||||||||||
Joseph C. Guyaux |
2015 | $ | 620,000 | $ | 1,999,842 | $ | 1,130,000 | $ | 708,458 | $ | 38,551 | $ | 4,496,851 | |||||||||||||||
Senior Vice Chairman & CEO & |
2014 | $ | 620,000 | $ | 1,874,984 | $ | 1,380,000 | $ | 725,352 | $ | 22,235 | $ | 4,622,571 | |||||||||||||||
President of PNC Mortgage |
2013 | $ | 620,000 | $ | 1,605,308 | $ | 1,255,000 | $ | 435,506 | $ | 34,253 | $ | 3,950,067 |
(a) | The Salary column includes any salary amounts deferred by an NEO under qualified (ISP) or non-qualified (DCIP) benefit plans. We describe these PNC plans on page 69. Please also see the Non-qualified deferred compensation in fiscal 2015 table on page 70 for the aggregate deferrals during 2015. |
(b) | The amounts in the Stock Awards column reflect the grant date fair value of stock awards (whole shares only). The grant date fair values are calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, CompensationStock Compensation (FASB ASC Topic 718). See Note 13 in our Annual Report on Form 10-K for the year ended December 31, 2015 for more information. The value of any fractional shares is paid in cash and included in the All Other Compensation column. See footnote (e) for additional details. In 2015, stock awards were granted on February 13, 2015 consisting of long-term incentive performance units and performance-based restricted share units, and for Mr. Parsley, a grant of ALM incentive performance units. The grant date fair value of the incentive performance units, performance-based restricted share units and the ALM incentive performance units is calculated using the target number of units underlying the award and a per share value based on the NYSE closing price of our common stock on February 13, 2015 of $92.38. If PNCs performance during the applicable measurement period results in the maximum number of units vesting, our executives would each be entitled to receive a maximum award with a grant date fair value of the maximum award as follows: |
Grant Date Fair Value of Maximum Award | ||||||||
NEO | Incentive Performance Units | Performance-Based Restricted Share Units | ||||||
William S. Demchak |
$ | 4,349,943 | $ | 4,349,943 | ||||
Robert Q. Reilly |
$ | 1,171,840 | $ | 1,171,840 | ||||
Michael P. Lyons |
$ | 2,512,390 | $ | 2,512,390 | ||||
E William Parsley, III* |
$ | 968,720 | $ | 968,720 | ||||
Joseph C. Guyaux |
$ | 1,249,901 | $ | 1,249,901 |
* | The grant date fair value of Mr. Parsleys ALM grant at the maximum value is $5,999,896. |
See the Grants of plan-based awards in 2015 table on pages 60 and 61 for more information regarding the grants we made in 2015, the Outstanding equity awards at 2015 fiscal year-end table on pages 64 and 65 for more information regarding options and other awards outstanding at December 31, 2015, and the Option exercises and stock vested in fiscal 2015 table on page 66 for more information regarding stock vesting during 2015. |
(c) | Our NEOs received an annual incentive award paid in cash early in 2016 which is reflected in this column for the 2015 performance year. |
(d) | The dollar amounts in this column include the increase in the actuarial value of our Qualified Pension Plan, ERISA Excess Pension Plan and Supplemental Executive Retirement Plan. We describe these plans on page 67. The amounts include both (1) the change in value due to an additional year of service, compensation changes and plan amendments (if any) and (2) the change in value attributable to other assumptions, most significantly discount rate. We do not pay above-market or preferential earnings on any compensation that is deferred on a basis that is not tax-qualified, including such earnings on non-qualified defined contribution plans. For an additional explanation on how we calculate the earnings on our deferred compensation plans, see the 2015 rates of return chart in the Non-qualified deferred compensation in fiscal 2015 table on page 72. |
(e) | The amounts in this column include, for all NEOs, net of any reimbursements to PNC: (1) the dollar value of matching contributions made by us to the ISP; (2) the net insurance premiums paid by us in connection with our Key Executive Equity |
58 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
SUMMARY COMPENSATION TABLE
Program; (3) the executive long-term disability premiums paid by us; (4) perquisites and other personal benefits; (5) matching gifts made by us to charitable organizations under our employee charitable matching gift program; and (6) cash paid for fractional shares of the 2015 stock awards described in footnote (b) on page 58. |
All Other Compensation for 2015 consisted of the following: |
NEO | Perquisites and Other Personal Benefits* |
Registrant ISP Contributions |
Insurance Premiums** |
Other*** | Total to Summary Compensation Table |
|||||||||||||||
William S. Demchak |
$ | 109,975 | $ | 10,600 | $ | 44,835 | $ | 91 | $ | 165,501 | ||||||||||
Robert Q. Reilly |
$ | 10,761 | $ | 10,600 | $ | 20,927 | $ | 1,056 | $ | 43,344 | ||||||||||
Michael P. Lyons |
| $ | 6,577 | | $ | 177 | $ | 6,754 | ||||||||||||
E William Parsley, III |
$ | 11,108 | $ | 10,900 | | $ | 100 | $ | 22,108 | |||||||||||
Joseph C. Guyaux |
$ | 20,000 | $ | 10,600 | $ | 5,293 | $ | 2,658 | $ | 38,551 |
* | The dollar amount of the perquisite represents the incremental cost of providing the benefit. For 2015, the incremental cost to PNC of the personal aircraft use is calculated by multiplying the total number of personal flight hours times the average direct variable operating costs (including costs related to fuel, maintenance expenses related to operation of the plane during the year and landing and parking fees) per flight hour for the particular aircraft for the year plus crew expenses attributable to the personal use. Since the aircraft are used primarily for business travel, we do not include in the calculation the fixed costs that do not change based on usage, such as crew salaries and other maintenance and inspection and capital improvement costs intended to cover a multiple-year period. Mr. Demchak, Mr. Reilly, Mr. Parsley and Mr. Guyaux used the aircraft for personal flights during 2015. For these flights, Mr. Demchak, Mr. Reilly and Mr. Guyaux did not use their time-sharing agreements. The incremental cost of Mr. Demchaks use of the aircraft was $100,000. This column also includes the costs of financial preparation and tax consulting services for Mr. Demchak, Mr. Reilly, Mr. Parsley and Mr. Guyaux. Mr. Demchak, Mr. Reilly, and Mr. Lyons each have a corporate travel credit card not generally available to all employees for which there is no incremental cost to PNC. |
** | We pay premiums for certain of the NEOs in connection with our Key Executive Equity Program, which is a split-dollar insurance arrangement. However, new participants have not been permitted in this program since 2007. In addition, we pay long-term disability premiums on behalf of certain of our NEOs. The dollar amounts under the Insurance Premiums column include the 2015 net premiums we paid in connection with our Key Executive Equity Program on behalf of Mr. Demchak ($40,534) and Mr. Reilly ($16,732). These net premiums represent the full dollar amounts we paid for both the term and non-term portions of this plan, after any officer contributions. The amounts under this column also include the long-term disability premiums we paid on behalf of Mr. Demchak ($4,301), Mr. Reilly ($4,195) and Mr. Guyaux ($5,293). |
*** | This column reflects the dollar amount of matching gifts made by us to charitable organizations under our employee charitable matching gift program for Mr. Reilly ($1,000) and Mr. Guyaux ($2,500) and the cash paid for fractional shares of the 2015 stock awards described in footnote (b) on page 58. |
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 59
GRANTS OF PLAN-BASED AWARDS IN 2015
Grants of plan-based awards in 2015
Estimated Future Payouts Under Non-Equity Incentive Plan Awards(a) |
Estimated Future Payouts Under Equity Incentive Plan Awards(b) |
Grant Date of Stock ($)(c) |
||||||||||||||||||||||||||||||
Award Type | Grant Date | Thres- hold ($) |
Target ($) |
Maximum ($) |
Thres- hold ($) |
Target (#) |
Maximum (#) |
|||||||||||||||||||||||||
William S. Demchak | ||||||||||||||||||||||||||||||||
Annual Incentive Award | February 13, 2015 | | $ | 3,300,000 | $ | 10,152,000 | ||||||||||||||||||||||||||
Incentive Performance Units | February 13, 2015 | | 37,670 | 47,087 | $ | 3,479,955 | ||||||||||||||||||||||||||
Performance-Based Restricted Share Units | February 13, 2015 | | 37,670 | 47,087 | $ | 3,479,955 | ||||||||||||||||||||||||||
Robert Q. Reilly | ||||||||||||||||||||||||||||||||
Annual Incentive Award | February 13, 2015 | | $ | 1,250,000 | | |||||||||||||||||||||||||||
Incentive Performance Units | February 13, 2015 | | 10,148 | 12,685 | $ | 937,472 | ||||||||||||||||||||||||||
Performance-Based Restricted Share Units | February 13, 2015 | | 10,148 | 12,685 | $ | 937,472 | ||||||||||||||||||||||||||
Michael P. Lyons | ||||||||||||||||||||||||||||||||
Annual Incentive Award | February 13, 2015 | | $ | 1,500,000 | $ | 10,152,000 | ||||||||||||||||||||||||||
Incentive Performance Units | February 13, 2015 | | 21,757 | 27,196 | $ | 2,009,912 | ||||||||||||||||||||||||||
Performance-Based Restricted Share Units | February 13, 2015 | | 21,757 | 27,196 | $ | 2,009,912 | ||||||||||||||||||||||||||
E William Parsley, III | ||||||||||||||||||||||||||||||||
Annual Incentive Award | February 13, 2015 | | $ | 1,000,000 | $ | 10,152,000 | ||||||||||||||||||||||||||
Incentive Performance Units | February 13, 2015 | | 8,389 | 10,486 | $ | 774,976 | ||||||||||||||||||||||||||
Performance-Based Restricted Share Units | February 13, 2015 | | 8,389 | 10,486 | $ | 774,976 | ||||||||||||||||||||||||||
ALM Incentive Performance Units | February 13, 2015 | | 32,474 | 64,948 | $ | 2,999,948 | ||||||||||||||||||||||||||
Joseph C. Guyaux | ||||||||||||||||||||||||||||||||
Annual Incentive Award | February 13, 2015 | | $ | 930,000 | $ | 10,152,000 | ||||||||||||||||||||||||||
Incentive Performance Units | February 13, 2015 | | 10,824 | 13,530 | $ | 999,921 | ||||||||||||||||||||||||||
Performance-Based Restricted Share Units | February 13, 2015 | | 10,824 | 13,530 | $ | 999,921 |
(a) | The amounts listed in the Target column relate to the target annual incentive award for the 2015 performance year. Annual incentive awards for 2015 were paid in 2016. All incentive awardscash and equity-basedare payable based on performance, and the targets help the Personnel and Compensation Committee to determine the appropriate amount of incentive compensation for target performance. The amount listed in the Target column shows the target annual incentive award included in the total compensation target approved by the Committee for each NEO as of the date listed. The amount listed in the Maximum column shows the amount that the Committee approves each year in order to preserve tax deductibility under Section 162(m) of the Internal Revenue Code of 1986, as amended. Mr. Reillys compensation is not subject to Section 162(m). The Maximum amount is not intended to be tied to performance rather, it is a formulaic determination made under IRS regulations that provides PNC with the flexibility to receive tax deductions for performance-based compensation. The Committee looks to the performance for the year and the target annual incentive amount when making incentive compensation decisions, and exercises negative discretion to provide an award that is significantly smaller than the Maximum amount. For NEOs who are covered employees under §162(m) of the Internal Revenue Code of 1986, as amended, the calculation of the Maximum amount was approved by the Personnel and Compensation Committee on February 26, 2015, based on 0.2% of our Incentive Income, an adjusted net income metric that is defined in the 1996 Executive Incentive Award Plan. At the time the Maximum amount is set, the Committee uses a budgeted amount for 2015 which is included as $10,152,000 in the Maximum column. |
(b) | The amounts listed in these columns include the incentive performance unit grants and the performance-based restricted share unit grants, as further described on page 43. As there is no guaranteed minimum payout for these awards and, in the case of the incentive performance unit grants, the Personnel and Compensation Committee has discretion to decrease any award otherwise payable, we have not included a Threshold amount in this column. The Target amount represents 100% of the grant and the Maximum amount represents 125% of the grant (rounded down to whole shares). For the incentive performance unit grants, the performance period began on January 1, 2015 and will end on December 31, 2017. For the performance-based restricted share unit grants, the performance period began on January 1, 2015 and will end on December 31, 2018, with vesting opportunities for a portion of the grant on each of the four applicable grant date anniversaries. In addition, for Mr. Parsley the amounts also include an ALM incentive performance unit grant as described in footnote (b) to the Summary compensation table on page 58. For a discussion of the terms, conditions and performance goals related to this incentive performance unit grant, see page 43. As there is no guaranteed minimum payout for Mr. Parsleys award, and the Personnel and Compensation Committee has the discretion to decrease any award otherwise payable, we have not included a Threshold amount in this column for this award. The Target amount represents 100% of the grant and the Maximum amount represents 200% of the grant. For this grant, the performance period began on January 1, 2015 and will end on December 31, 2017. |
60 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
GRANTS OF PLAN-BASED AWARDS IN 2015
In determining the payout for regular grants of incentive performance units made in 2015, adjustments will be made on an after-tax basis for the impact of: |
| extraordinary items (as such term is used under GAAP) |
| items resulting from a change in tax law |
| discontinued operations |
| acquisition costs and merger integration costs |
| any costs or expense arising from specified Visa litigation and any other gains recognized on redemption or sale of Visa shares, as applicable |
| in PNCs case, the net impact on PNC of significant gains or losses related to certain BlackRock transactions |
| acceleration of the accretion of any remaining issuance discount in connection with the redemption of any preferred stock |
| any other charges or benefits related to the redemption of trust preferred or other preferred securities |
(c) | The grant date fair values for incentive performance units and performance-based restricted share units are all calculated in accordance with FASB ASC Topic 718. See Note 13 in our Annual Report on Form 10-K for the year ended December 31, 2015 for more information. The grant date fair values for incentive performance units, performance-based restricted share units and ALM incentive performance units represent the closing price for our common stock on February 13, 2015 of $92.38. The grant date fair values for incentive performance units and performance-based restricted share units represent the target amount of units in the grant. |
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 61
OUTSTANDING EQUITY AWARDS AT 2015 FISCAL YEAR-END
Outstanding equity awards at 2015 fiscal year-end
With respect to the following three forms of equity-based awards included in the table, the Committee made performance-based or risk-based determinations in the first quarter of 2016, as described in more detail below:
Performance-based restricted share units
Metric | Status | |
Estimated Tier 1 risk-based capital ratio at least 6% |
12.0% (exceeded) | |
Total shareholder return (TSR) |
106.81% (Target + actual one-year TSR 6.81% for 2015) |
62 THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement
OUTSTANDING EQUITY AWARDS AT 2015 FISCAL YEAR-END
Incentive performance units
Payout % |
Overall Payout
|
|||||||||||
Metric | 2013 | 2014 | 2015 | |||||||||
EPS Growth Payout |
125.00% | 59.23% | 99.45% | 109.78% | ||||||||
(PNC Ranking in peer group) |
(2 out of 13) | (10 out of 13) | (7 out of 12) | |||||||||
ROCE Payout |
125.00% | 125.00% | 125.00% | |||||||||
(ROCE as a percentage of COCE) |
(180.00%) | (169.75%) | (160.41%) |
ALM incentive performance units
Payout Percentage | ||||||||||||||||
Metric | 2013 | 2014 | 2015 | Overall | ||||||||||||
Performance of ALM unit against benchmark index |
200.00 | % | 199.33 | % | 200.00 | % | 199.78 | % |
THE PNC FINANCIAL SERVICES GROUP, INC. - 2016 Proxy Statement 63
OUTSTANDING EQUITY AWARDS AT 2015 FISCAL YEAR-END
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||
Grant Date or Performance Period(a) |
No. of Securities Underlying Unexercised Options (#) Exercisable(b) |
Option Exercise Price ($) |
Option Expiration Date |
Grant Date or Period(a) |
No. of Units of Stock That Have Not Vested (#)(c) |
Market Value of Shares or Units of Stock That Have Not Vested ($)(d) |
Equity Incentive Plan Awards: No. of Unearned Shares, Units or Other Rights That Have Not Vested (#)(e) |
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) |