The CG&N Committee assists the Board in reviewing and identifying individuals qualified to become Board members. The CG&N Committee utilizes Board-approved criteria, set forth in our Corporate Governance Guidelines (see “Helpful Resources” on page 88), in recommending nominees for directors at Annual Meetings and to fill vacancies on the Board. Directors chosen to fill vacancies will hold office for a term expiring at the end of the next Annual Meeting.
In selecting nominees for election as directors, our CG&N Committee considers the following with respect to Board composition:
- Professional background and experience. The individual’s specific experience, background and education, including skills and knowledge essential to the oversight of the company’s businesses.
- Senior-level management positions. The individual’s sustained record of substantial accomplishments in senior-level management positions in business, government, education, technology or not-for-profit enterprises.
- Judgment and Challenge. The individual’s capability of evaluating complex business issues and making sound judgments and constructively challenging management’s recommendations and actions.
- Diversity. The individual’s contribution to the diversity of the Board (in all aspects of that term), including viewpoints, professional experience, education, skills and other individual qualities such as race, gender and ethnicity, and the variety of attributes that contribute to the Board’s collective strength.
- Intangible attributes. The individual’s character and integrity and interpersonal skills to work with other directors on our Board in ways that are effective, collegial and responsive to the needs of the company.
- Time. The individual’s willingness and ability to devote the necessary time and effort required for service on our Board.
- Independence. The individual’s freedom from conflicts of interest that could interfere with their duties as a director.
- Stockholders’ interests. The individual’s strong commitment to the ethical and diligent pursuit of stockholders’ best interests.
leaders, across a variety of industries. The CG&N Committee will evaluate all candidates suggested by other directors or third-party search firms (which the company retains from time to time, including over the past year, to help identify potential candidates) or recommended by a stockholder for nomination as a director in the same manner. For information on recommending a candidate for nomination as a director see “Contacting the Board’ on page 30.
The Board and the CG&N Committee have concluded that each of our current Board members should be recommended for re-nomination as a director. In considering whether to recommend re-nomination of a director for election at our Annual Meeting, the Board and the CG&N Committee considered, among other factors:
- The criteria for the nomination of directors described above,
- Feedback from the annual Board and committee evaluations,
- Attendance and preparedness for Board and committee meetings,
- Outside board and other affiliations, for actual or perceived conflicts of interest,
- The overall contributions to the Board, and
- The needs of the company.
Each of the nominees for election as director, other than Mses. Cook, Morgan and Robinson, was elected as a director at our 2016 Annual Meeting. Ms. Robinson was appointed a director effective October 3, 2016 and was recommended to the CG&N Committee for consideration as a candidate after members of management who had become acquainted with her through her work with The Goldman Sachs Group, Inc. learned of her impending retirement. Each of Mses. Cook and Morgan was appointed a director effective December 1, 2016; they were recommended to the CG&N Committee for consideration as a candidate by a third-party search firm and a director, respectively. Our Board believes that each of the nominees meet the criteria described above with diversity and depth and breadth of experience that enable them to oversee management of the company as an effective and engaged Board. No director has a family relationship to any other director, nominee for director or executive officer.
Catherine A. Rein, who was elected as a director at our 2016 Annual Meeting, will not be standing for reelection. The Board is grateful to Ms. Rein for her invaluable contributions as a director during her more than 35 years of service to the company and The Bank of New York. The Board will miss the camaraderie, commitment, insight and perspective of Ms. Rein.
Majority Voting Standard
Under our by-laws, in any uncontested election of directors, each director will be elected if more votes are cast “for” the director’s election than are cast “against” the director’s election, with abstentions and broker non-votes not being counted as a vote cast either “for” or “against” the director’s election. A plurality standard will apply in any contested election of directors, which is an election in which the number of nominees for director exceeds the number of directors to be elected. Pursuant to our Corporate Governance Guidelines, if any incumbent director fails to receive a majority of the votes cast in any uncontested election, the director will be required to tender his or her resignation to the Lead Director (or such other director designated by the Board if the director failing to receive the majority of votes cast is the Lead Director) promptly after the certification of the stockholder vote.
Our CG&N Committee will promptly consider the tendered resignation and recommend to the Board whether to accept or reject it, or whether other actions should be taken. In considering whether to accept or reject the tendered resignation, the CG&N Committee will consider whatever factors its members deem relevant, including any stated reasons for the “against” votes, the length of service and qualifications of the director whose resignation has been tendered, the director’s contributions to the company, and the mix of skills and backgrounds of the Board members. The Board will act on the CG&N Committee’s recommendation no later than 90 days following the certification of the election in question. In considering the recommendation of the CG&N Committee, the Board will consider the factors considered by the CG&N Committee and such additional information and factors as it deems relevant.
Following the Board’s decision, the company will publicly disclose the Board’s decision in a Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”). If the Board does not accept the director’s resignation, it may elect to address the underlying stockholder concerns or to take such other actions as it deems appropriate and in the best interests of the company and its stockholders. A director who tenders his or her resignation pursuant to this provision will not vote on the issue of whether his or her tendered resignation will be accepted or rejected. If the Board accepts an incumbent director’s resignation pursuant to this provision, or if a nominee for director is not elected and the nominee is not an incumbent director, then the Board may fill the resulting vacancy pursuant to our by-laws. If the Board does not accept an incumbent director’s resignation pursuant to this provision, he or she will continue to serve on the Board until the election of his or her successor.
Our Corporate Governance Practices
We believe that the strength of BNY Mellon’s business is a direct reflection of the high standards set by our governance structure. It provides guidance in managing the company from the Board of Directors on down for the benefit of all our stakeholders including our investors, clients, employees and communities. Our key governance practices are described below.
- Our Board is comprised of all independent directors, other than our Chief Executive Officer, and our independent directors meet in executive sessions led by our Lead Director at each regularly scheduled Board and committee meeting.
- Reflecting our Board’s focus on refreshment, in 2016 our Board added three new diverse directors
- Our independent Lead Director is selected annually by our independent directors and has broad powers, including approval of Board meeting agendas, materials and schedules, leading executive sessions and consulting with the Chairman of the Human Resources and Compensation Committee (“HRC Committee”) on CEO performance, compensation and succession
- Our standing committees are composed entirely of independent directors.
- We had a high rate of director attendance at Board and committee meetings in 2016, averaging 93%.
- We have continued to actively engage with our stakeholders through multiple initiatives, inviting feedback from investors representing about 45% of our outstanding shares and reaching investors representing almost 30% of our outstanding shares, as well as with proxy advisory firms and other stakeholders.
- Our Board publicly endorsed the Shareholder-Director Exchange (SDX) Protocol as a guide to support effective engagement between stockholders and directors.
- Stockholders and other interested parties can directly contact our Board (see “Helpful Resources” on page 88).
- Our Corporate Governance Guidelines require that the Corporate Governance and Nominating Committee rotate the Lead Director and committee Chairmen at five-year intervals and consider enhanced director qualifications in connection with director nominations.
- Following engagement with stockholders, in 2015 we adopted proxy access and further refined our proxy disclosures regarding executive compensation and the annual Board self-evaluation process and resulting enhancements.
- Our by-laws permit holders in the aggregate of 20% of our outstanding common stock to call a special shareholder meeting.
- Our Board and each of our standing committees conduct annual self-evaluations that have resulted in enhancements to the Board (see “Evaluation of Board and Committee Effectiveness” on page 19).
- Our Board participates in information sessions during regularly scheduled and special meetings, during which they receive business, regulatory and other updates from senior management, risk executives and our General Counsel.
- Directors are encouraged to participate in continuing education programs and our company reimburses directors for such expenses.
- We amended our Corporate Governance Guidelines to refine the Lead Director duties and responsibilities and limit any director who also serves as an executive officer of a publicly traded company to service on the board of one other public company in addition to our Board.
- A significant portion of director compensation is paid in deferred stock units, which must be held as long as the director serves on the Board.
- We have adopted codes of conduct applicable to our directors, as well as all of our employees, to provide a framework for the highest standards of professional conduct and to foster a culture of honesty and accountability.
- We have enhanced our thorough and robust director orientation program in which new directors participate in their first six months as a director.
|What We Don’t Do||
- No staggered board.
- No “poison pill” (stockholders’ rights plan).
- No supermajority voting. Action by stockholders requires only a majority of the votes cast (not a majority of the shares present and entitled to vote).
- No plurality voting in uncontested director elections. Each director must be elected by a majority of the votes cast.
Corporate Governance Developments
Based on stockholder engagement, over the last few years our Board has been focused on Board refreshment and has redoubled its succession efforts accordingly. In 2016, our Board added three new diverse directors. Since August 2014, six of our directors have retired or announced their retirement and our Board has added seven new directors over that same period. Each of these new directors has added experience and unparalleled expertise to our Board, complementing and supplementing the experience and talents of our Board as a whole. Although the CG&N Committee is principally involved in Board succession and recruitment, our entire Board plays a role in recruiting, interviewing and assessing candidates. Our Board’s succession planning is ongoing and will continue to be robust as it seeks to further enhance the diversity of our Board while balancing necessary continuity.
Our Board, led by our CG&N Committee, also continually seeks to improve our governance structures, and has recently made the following enhancements:
- to ensure our directors have sufficient time to devote to BNY Mellon matters, amended our Corporate Governance Guidelines such that any director who also serves as an executive officer of a publicly traded company can only serve on the board of one other publicly traded company in addition to our Board,
- amended our Corporate Governance Guidelines to clarify the role of the Lead Director, in connection with our chief executive officer’s compensation, succession planning and the Board’s annual performance evaluation,
- amended our Corporate Governance Guidelines to require rotation of the Lead Director at a five-year interval,
- amended our Corporate Governance Guidelines to reflect areas of consideration in the annual Board self-evaluation, and
- eliminated the Executive Committee, in recognition of the ability to convene the Board in exigent circumstances.
As previously disclosed, during 2016 our Board elected Mr. Echevarria as our new Lead Director, consistent with our Board’s succession planning. In addition, our Board elected new chairs to the CG&N, Corporate Social Responsibility and Human Resources and Compensation Committees in 2016. We anticipate the election of a new chair to the Technology Committee in 2017.
Evaluation of Board and Committee Effectiveness
Annually, the Board and each of our standing committees conducts a self-evaluation to continually enhance performance. The Board and management then work together to enhance Board and committee effectiveness in light of the results of the self-evaluations.
The CG&N Committee, in consultation with the Lead Director, will determine the process, scope and contents of the Board’s annual performance evaluation. Areas of consideration in the Board self-evaluations include director contribution and performance, Board structure and size, Board dynamics, the range of business, professional and other backgrounds of directors necessary to serve the company and the range and type of information provided to the Board by management.
Based on the CG&N Committee’s determination of the evaluation process and scope, each standing committee self-evaluation is conducted in an executive session led by the chairman of the committee. The results of the self-evaluation of each standing committee are reported to the full Board.
As a result of the most recent round of Board and committee self-evaluations, the Board determined to refine committee reporting to the Board to convey matters discussed and actions taken. The Board also decided that all directors should have access to materials for all committees as a good governance practice. Finally, the directors suggested enhancements to the new director orientation program which have been implemented, including additional one-on-one sessions with our executive officers.
Active Stockholder Engagement Program
We conduct extensive governance reviews and investor outreach throughout the year, and our Board has formally endorsed the SDX Protocol which offers guidance to public company boards and stockholders on when engagement is appropriate, and how to make these engagements valuable and effective. Our independent directors engage in outreach discussions along with management to ensure that both management and our Board are aware of and consider stockholders’ perspectives on a variety of issues, including governance, strategy and performance, and address those matters effectively. For example, our implementation of proxy access was informed by the discussions among directors, management and stockholders with respect to certain provisions. Additionally, following feedback from stockholders regarding our annual Board and committee self-evaluation process, we have refined our proxy statement to include discussion regarding this important process and subsequent actions to continuously enhance Board and committee function.
Board Leadership Structure
Our Board has reviewed its current leadership structure — which consists of a combined Chairman and Chief Executive Officer with an independent Lead Director — in light of the Board’s composition, the company’s size, the nature of the company’s business, the regulatory framework under which the company operates, the company’s stockholder base, the company’s peer group and other relevant factors. Our Board has determined that a combined Chairman and Chief Executive Officer position, with an independent Lead Director, continues to be the most appropriate Board leadership structure for the company and promotes Board effectiveness.
|Efficient and Effective Action||A combined Chairman/Chief Executive Officer:
- Is in the best position to be aware of major issues facing the company on a day-to-day and long-term basis, and to identify and bring key risks and developments facing the company to the Board’s attention (in coordination with the Lead Director as part of the agenda-setting process), and
- Eliminates the potential for uncertainty as to who leads the company, providing the company with a single public “face” in dealing with stockholders, employees, regulators, analysts and other constituencies.
- A substantial majority of our peers also utilize a similar board structure with a combined Chairman and Chief Executive Officer, as well as a lead or presiding independent director.
|Strong Counterbalances||As set forth in our Corporate Governance Guidelines, our Lead Director:
- Reviews and approves, in coordination with the Chairman and Chief Executive Officer, agendas for Board meetings, materials, information and meeting schedules,
- Has the authority to add items to the agenda for any Board meeting,
- Presides at executive sessions of independent directors, which are held at each regular Board and committee meeting,
- Serves as a non-exclusive liaison between the other independent directors and the Chairman/Chief Executive Officer,
- Can call meetings of the independent directors in his discretion and chairs any meeting of the Board or stockholders at which the Chairman is absent,
- Is available to meet with major stockholders and regulators under appropriate circumstances,
- Consults with the HRC Committee regarding its consideration of Chief Executive Officer compensation,
- In conjunction with the chairman of the HRC Committee, discusses with the Chairman/Chief Executive Officer the Board’s annual evaluation of his performance as Chief Executive Officer,
- Consults with the HRC Committee on Chief Executive Officer succession planning, and
- Consults with the Chairman of the CG&N Committee on the Board’s annual performance evaluation.
In addition, the powers of the Chairman under our by-laws are limited — other than chairing meetings of the Board and stockholders, the powers conferred on the Chairman (e.g., ability to call special meetings of stockholders or the Board) can also be exercised by the Board or a specified number of directors or, in some cases, the Lead Director, or are administrative in nature (e.g., authority to execute documents on behalf of the company).
Our Board has determined that 12 of our 13 director nominees are independent. Our independent director nominees are Linda Z. Cook; Nicholas M. Donofrio; Joseph J. Echevarria; Edward P. Garden; Jeffrey A. Goldstein; John M. Hinshaw; Edmund F. “Ted” Kelly; John A. Luke, Jr.; Jennifer B. Morgan; Mark A. Nordenberg; Elizabeth E. Robinson and Samuel C. Scott III. As our Chairman and Chief Executive Officer, Gerald L. Hassell is not independent. The Board has also determined that each of Mr. Kogan and Dr. Richardson, who did not stand for reelection as a director last year, Mr. von Schack, who resigned effective following our 2016 Annual Meeting, and Ms. Rein, who is not standing for reelection as a director this year, was independent during the period in 2016 in which he or she served as a director.
Our Standards of Independence
For a director to be considered independent, our Board must determine that the director does not have any direct or indirect material relationship with us. Our Board has established standards (which are also included in our Corporate Governance Guidelines) based on the specified categories and types of transactions, which conform to, or are more exacting than, the independence requirements of the New York Stock Exchange, or NYSE.
Our Board will also determine that a director is not independent if it finds that the director has material business arrangements with us that would jeopardize that director’s judgment. In making this determination, our Board reviews business arrangements between the company and the director and between the company and any other company for which the director serves as an officer or general partner, or of which the director directly or indirectly owns 10% or more of the equity. Our Board has determined that these arrangements will not be considered material if:
- they are of a type that we usually and customarily offer to customers or vendors;
- they are on terms substantially similar to those for comparable transactions with other customers or vendors under similar circumstances;
- in the event that the arrangements had not been made or were terminated in the normal course of business, it is not reasonably likely that there would be a material adverse effect on the financial condition, results of operations or business of the recipient; or
- in the case of personal loans, the loans are subject to and in compliance with Regulation O of the Board of Governors of the Federal Reserve System.
Our Board may also consider other factors as it may deem necessary to arrive at sound determinations as to the independence of each director, and such factors may override the conclusion of independence or non-independence that would be reached simply by reference to the factors listed above.
In determining that each of the directors, other than Mr. Hassell, is independent, our Board reviewed these standards, the corporate governance rules of the NYSE and the SEC, and the individual circumstances of each director.
The following categories or types of transactions, relationships and arrangements were considered by the Board in determining that a director is independent. None of these transactions, relationships and arrangements rose to the level that would require disclosure under our related party transactions policy described on page 85, and none of the transactions described below were in an amount that exceeded the greater of $1 million or 2% of the other entity’s consolidated gross revenues, which is one of our standards for director independence:
- Purchases of goods or services in the ordinary course of business. The company and its subsidiaries purchased goods and services from the following organizations during a period in 2016 when one of our current independent directors served as an executive officer of, or was otherwise employed by, such organization: Hewlett Packard Enterprise Company (Mr. Hinshaw), SAP SE (Ms. Morgan) and the University of Pittsburgh (Mr. Nordenberg). All of these purchases were made in the ordinary course of business. These purchases, when aggregated by seller, did not exceed 0.06% of the seller’s annual revenue for its last reported fiscal year or 0.17% of our annual revenue for 2016.
- Sales of goods or services in the ordinary course of business. The company and its subsidiaries provided various financial services — including asset management services, asset servicing, global markets services, issuer services, treasury services, leasing, liquidity investment services or credit services — to the following organizations during a period in 2016 when one of our current independent directors served as an executive officer of, or was otherwise employed by, such organization: EIG Global Energy Partners (Ms. Cook); Trian Fund Management, L.P. (Mr. Garden); Hellman & Friedman LLC (Mr. Goldstein); Hewlett Packard Enterprise Company (Mr. Hinshaw) and the University of Pittsburgh (Mr. Nordenberg). All of the services were provided in the ordinary course of our business and at prevailing customer rates and terms. The amount of fees paid to us by each purchaser was less than 0.2% of the purchaser’s annual revenue for its last reported fiscal year and less than 0.01% of our annual revenue for 2016.
- Customer relationships. We and our subsidiaries provide ordinary course services, including asset management services, banking services, broker services and credit services, to Messrs. Luke, Nordenberg and Richardson and Ms. Rein, in each case on terms substantially similar to those offered to other customers in similar circumstances.
- Charitable contributions. We made (directly, through our subsidiaries or by the BNY Mellon Foundation or the BNY Mellon Foundation of Southwestern Pennsylvania) charitable contributions to not-for-profit, charitable or tax-exempt organizations for which one of our current or former independent directors served as a director, executive officer or trustee during 2016, namely Messrs. Donofrio, Echevarria, Goldstein, Nordenberg, Scott and von Schack. In 2016, charitable contributions to these organizations totaled approximately $700,000 in the aggregate, and none of these organizations received a contribution greater than $170,000.
- Beneficial ownership or voting power. In the ordinary course of our investment management business, we beneficially own or have the power to vote (directly or through our subsidiaries or through funds advised by our subsidiaries) shares of companies for which one of our independent directors served as an executive officer in 2016, namely Hewlett Packard Enterprise Company (Mr. Hinshaw) and SAP SE (Ms. Morgan). As of December 31, 2016, we, our subsidiaries or funds advised by our subsidiaries, in the aggregate, owned or had the power to vote less than 1.01% of the outstanding shares of Hewlett Packard Enterprise Company and depositary receipts representing less than 0.03% of the outstanding shares of SAP SE.
Our Board determined that none of the transactions, relationships and arrangements described above constituted a material relationship between the respective director and our company or its subsidiaries for the purpose of the corporate governance rules of the NYSE and SEC and our Corporate Governance Guidelines. As such, our Board determined that these transactions, relationships and arrangements did not affect the independence of such director and did not impair such director’s ability to act in the stockholders’ best interests.
Oversight of Risk
Successful management of our company requires understanding, identification and management of risk. We oversee risk through multiple lines of defense.
|Entity||Primary Responsibilities for Risk Management
consisting entirely of independent directors
- Review and approval of the enterprise-wide risk management practices of the company.
- Review and approval of the company’s risk appetite statement on an annual basis, and approval of any material amendment to the statement.
- Review of significant financial and other risk exposures and the steps management has taken to monitor, control and report such exposures.
- Evaluation of risk exposure and tolerance, and approval of Board level limits or exceptions.
- Review and evaluation of the company’s policies and practices with respect to risk assessment and risk management.
- Review, with respect to risk management and compliance, of (1) reports and significant findings of the company’s Risk Management and Compliance department (the “Risk department”) and the Internal Audit department (“Internal Audit”), (2) significant reports from regulatory agencies and management’s responses, and (3) the Risk department’s scope of work and its planned activities.
consisting entirely of independent directors
- Review and discussion of policies with respect to risk assessment and risk management.
- Oversight responsibility with respect to the integrity of our company’s financial reporting and systems of internal controls regarding finance and accounting, as well as our financial statements.
- Review of the Risk Committee’s annual report summarizing its review of the company’s methods for identifying and managing risks.
- Review of the Risk Committee’s semi-annual reports regarding corporate-wide compliance with laws and regulations.
- Review of any items escalated by the Risk Committee that have significant financial statement impact or require significant financial statement/regulatory disclosures.
- Chief Risk Officer: Implement an effective risk management framework and daily oversight of risk.
- Internal Audit: Provide reliable and timely information to our Board and management regarding our company’s effectiveness in identifying and appropriately controlling risks.
- Senior Risk Management Committee: Provide a senior focal point within the company to monitor, evaluate and recommend comprehensive policies and solutions to deal with all aspects of risk and to assess the adequacy of any risk remediation plans in our company’s businesses.
We also encourage robust interactions among the different parties responsible for our risk management. Since the financial crisis emerged in September 2008, the Risk and Audit Committees of our Board have held joint sessions at the beginning of each of their regular meetings to hear reports and discuss key risks affecting our company and our management of these risks.
All independent directors are typically present during joint sessions, because all independent directors are currently members of either our Risk or Audit Committee. In addition, the Risk Committee reviews the appointment, performance and replacement of our Chief Risk Officer, and the Senior Risk Management Committee’s activities, and any significant changes in its key responsibilities, must be reported to the Risk Committee. Our company has also formed several risk management sub-committees to identify, assess and manage risks. Each risk management sub-committee reports its activities to the Senior Risk Management Committee and any significant changes in the key responsibilities of any sub-committee, or a change in chairmanship of any sub-committee, must be approved by our Chief Risk Officer and subsequently reported to the Senior Risk Management Committee.
Our company also has a comprehensive internal risk framework, which facilitates risk oversight by our Risk Committee. Our risk management framework is designed to:
- provide that risks are identified, monitored, reported, and priced properly;
- define and measure the type and amount of risk the company is willing to take;
- communicate the type and amount of risk taken to the appropriate management level;
- maintain a risk management organization that is independent of risk-taking activities; and
- promote a strong risk management culture that encourages a focus on risk-adjusted performance.
Our primary risk exposures as well as our risk management framework and methodologies are discussed in further detail on pages 65 through 70 in our 2016 Annual Report. See “How We Address Risk and Control” on page 59 below for a discussion of risk assessment as it relates to our compensation program.
Board Meetings and Committee Information
Our Corporate Governance Guidelines provide that our directors are expected to attend our Annual Meeting of stockholders and all regular and special meetings of our Board and committees on which they sit. All of our directors then in office attended our 2016 Annual Meeting of stockholders.
Our Board held 14 meetings in 2016. Each incumbent director attended at least 75% of the aggregate number of meetings of our Board and of the committees on which he or she sat, and the average attendance rate was 93%.
Committees and Committee Charters
Our Board has established several standing committees, and each committee makes recommendations to our Board as appropriate and reports periodically to the entire Board. Our committee charters are available on our website (see “Helpful Resources” on page 88).
13 Meetings in 2016
|Joseph J. Echevarria (Chair), John A. Luke, Jr., Jennifer B. Morgan,
Mark A. Nordenberg, Catherine A. Rein, Samuel C. Scott III
Independent Registered Public Accountant. Our Audit Committee has direct responsibility for the appointment, compensation, annual evaluation, retention and oversight of the work of the registered independent public accountants engaged to prepare an audit report or to perform other audit, review or attestation services for us. The Committee is responsible for the pre-approval of all audit and permitted non-audit services performed by our independent registered public accountants and each year, the Committee recommends that our Board request stockholder ratification of the appointment of the independent registered public accountants.
Overseeing Internal Audit Function. The Committee acts on behalf of our Board in monitoring and overseeing the performance of our internal audit function. The Committee reviews the organizational structure, qualifications, independence and performance of Internal Audit and the scope of its planned activities, at least annually. The Committee also approves the appointment of our internal Chief Auditor, who functionally reports directly to the Committee and administratively reports to the CEO, and annually reviews his or her performance and, as appropriate, replaces the Chief Auditor.
Internal Controls over Financial Statements and Reports. The Committee oversees the operation of a comprehensive system of internal controls covering the integrity of our financial statements and reports, compliance with laws, regulations and corporate policies. Quarterly, the Committee reviews a report from the company’s Disclosure Committee and reports concerning the status of our annual review of internal control over financial reporting, including (1) information about (a) any significant deficiencies or material weaknesses in the design or operation of internal control over financial reporting that are reasonably likely to adversely affect our ability to record, process, summarize and report financial information and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in our internal control over financial reporting, and (2) management’s responses to any such circumstance. The Committee also oversees our management’s work in preparing our financial statements, which will be audited by our independent registered public accountants.
Members and Financial Expert. The Committee consists entirely of directors who meet the independence requirements of listing standards of the NYSE, Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the rules and regulations of the Federal Deposit Insurance Corporation (“FDIC”). All members are financially literate, have accounting or related financial management expertise within the meaning of the NYSE listing standards as interpreted by our Board and are outside directors, independent of management, under the FDIC’s rules and regulations. Our Board has determined that each of Mr. Echevarria and Mr. Scott satisfies the definition of “audit committee financial expert” as set out in the rules and regulations under the Exchange Act, based upon their experience actively supervising a principal accounting or financial officer or public accountant and has “banking and financial management expertise” as set out in the FDIC’s rules and regulations.
|Corporate Governance and Nominating Committee|
9 Meetings in 2016
|Mark A. Nordenberg (Chair), Linda Z. Cook, Nicholas M. Donofrio, Edward P. Garden, John A. Luke, Jr., Catherine A. Rein
Corporate Governance Matters. As further described on page 16, our CG&N Committee assists our Board of Directors in reviewing and identifying individuals qualified to become Board members. The Committee periodically considers the size of our Board and recommends changes to the size as warranted and is responsible for developing and recommending to our Board our Corporate Governance Guidelines and proposing changes to these guidelines from time to time as may be appropriate. In addition, the Committee oversees evaluations of our Board and its committees, reviews the structure and responsibilities of the Board’s committees and annually considers committee assignments, recommending changes to those assignments as necessary.
Oversight of Director Compensation and Benefits. The Committee reviews non-employee director compensation and benefits on an annual basis and makes recommendations to our Board on appropriate compensation, and is responsible for approving compensation arrangements for non-employee members of the Boards of our significant subsidiaries.
|Corporate Social Responsibility Committee|
3 Meetings in 2016
|Samuel C. Scott III (Chair), Nicholas M. Donofrio, Joseph J. Echevarria,
Mark A. Nordenberg
Our Corporate Social Responsibility Committee’s purpose is to promote a culture that emphasizes and sets high standards for corporate citizenship and to review corporate performance against those standards. The Committee is responsible for providing oversight of the company’s programs regarding strategic philanthropy and employee community involvement, public policy and advocacy, including lobbying and political contributions, environmental management, corporate social responsibility of suppliers, corporate social responsibility governance and reporting and human rights. The Committee also provides oversight for the company’s compliance with the Community Reinvestment Act and Fair Lending laws and considers the impact of the company’s businesses, operations and programs from a social responsibility perspective, taking into account the interests of stockholders, clients, suppliers, employees, communities and regulators.
For additional information regarding the company’s commitment to corporate social responsibility and the Committee’s recent initiatives, see “Helpful Resources” on page 88.
6 Meetings in 2016
|Jeffrey A. Goldstein (Chair), Joseph J. Echevarria, Edward P. Garden,
Elizabeth E. Robinson
The Finance Committee assists the Board in fulfilling its responsibilities with respect to the monitoring and oversight of the company’s financial resources and strategies. The Committee’s responsibilities and duties include reviewing: (1) financial forecasts, operating budgets, capital expenditures and expense management programs and progress relative to targets and relative to competitors; (2) plans with regard to net interest revenue, investment portfolio activities and progress relative to such plans and activities; (3) the company’s capital structure, capital raising and capital distributions; and (4) any initiatives, including investments, mergers, acquisitions, and dispositions, that exceed the thresholds in our Corporate Governance Guidelines and, as necessary, making recommendations to the Board regarding those initiatives.
|Human Resources and Compensation Committee|
6 Meetings in 2016
|Edward P. Garden (Chair), Jeffrey A. Goldstein, Edmund F. “Ted” Kelly,
Samuel C. Scott III
Compensation and Benefits. The HRC Committee is generally responsible for overseeing our employee compensation and benefit policies and programs, our management development and succession programs, the development and oversight of a succession plan for the CEO position and our diversity and inclusion programs. The Committee also administers and makes equity and/or cash awards under plans adopted for the benefit of our employees to the extent required or permitted by the terms of these plans, establishes any related performance goals and determines whether and the extent to which these goals have been attained. The Committee also evaluates and approves the total compensation of the CEO and all other executive officers and makes recommendations concerning equity-based plans, which recommendations are subject to the approval of our entire Board. The Committee also oversees certain retirement plans that we sponsor to ensure that: (1) they provide an appropriate level of benefits in a cost-effective manner to meet our needs and objectives in sponsoring such plans; (2) they are properly and efficiently administered in accordance with their terms to avoid unnecessary costs and minimize any potential liabilities to us; (3) our responsibilities as plan sponsor are satisfied; and (4) financial and other information with respect to such plans is properly recorded and reported in accordance with applicable legal requirements.
CEO Compensation. The Committee reviews and approves corporate goals and objectives relevant to the compensation of our CEO, his performance in light of those goals and objectives, and determines and approves his compensation on the basis of its evaluation. With respect to the performance evaluation and compensation decisions regarding our CEO, the Committee reports its preliminary conclusions to the other independent directors of our full Board in executive session and solicits their input prior to finalizing the Committee’s decisions.
Delegated Authority. The Committee has delegated to our CEO the responsibility for determining equity awards to certain employees, other than himself, who are eligible to receive grants under our Long-Term Incentive Plan (“LTIP”). This delegated authority is subject to certain limitations, including: (1) total aggregate shares represented by plan awards in any calendar year (1,100,000), (2) aggregate shares represented by plan awards that may be granted to any one individual in any calendar year (100,000), and (3) a sub-limit of shares represented by full value awards that may be granted in any calendar year (550,000). In addition, the Committee may delegate limited authority to our CEO to grant awards under the LTIP beyond these limits in connection with specific acquisitions or similar transactions.
Management Involvement. Our management provides information and recommendations for the Committee’s decision-making process in connection with the amount and form of executive compensation, except that no member of management will participate in the decision-making process with respect to his or her own compensation. The “Compensation Discussion and Analysis” starting on page 35 discusses the role of our CEO in determining or recommending the amount and form of executive compensation. In addition, we address the role of our management and its independent compensation consultants and the role of the Committee’s independent outside compensation advisor in determining and recommending executive compensation on page 29.
5 Meetings in 2016
|Edmund F. “Ted” Kelly (Chair), Linda Z. Cook, Nicholas M. Donofrio,
Edward P. Garden, Jeffrey A. Goldstein, John M. Hinshaw, Elizabeth E. Robinson
See “Oversight of Risk” on page 24 above for a discussion of the Risk Committee’s duties and responsibilities, which include: (1) review and approval of enterprise-wide risk management practices; (2) review and approval of the company’s risk appetite statement; (3) review of significant financial and other risk exposures; (4) evaluation of risk exposure and tolerance; (5) review and evaluation of the company’s policies and practices with respect to risk assessment and risk management; and (6) review, with respect to risk management and compliance, of certain significant reports. Our Board has determined that Mr. Kelly satisfies the independence requirements to serve as Chairman of the Risk Committee set out in the Board of Governors of the Federal Reserve System rules and has experience in identifying, assessing, and managing risk exposures of large, complex financial firms based upon his senior leadership experience of a multi-line insurance company.
8 Meetings in 2016
|Nicholas M. Donofrio (Chair), John M. Hinshaw, Jennifer B. Morgan, Mark A. Nordenberg
Technology Planning and Strategy. The Technology Committee is responsible for reviewing and approving the company’s technology planning and strategy, reviewing significant technology investments and expenditures, and monitoring and evaluating existing and future trends in technology that may affect our strategic plans, including monitoring overall industry trends. The Committee receives reports from management concerning the company’s technology and approves related policies or recommends such policies to the Board for approval, as appropriate. The Committee also oversees risks associated with technology.
Compensation Consultants to the HRC Committee
The HRC Committee has the sole authority to retain, terminate and approve the fees and other engagement terms of any compensation consultant directly assisting the committee, and may select or receive advice from any compensation consultant only after taking into consideration all factors relevant to the consultant’s independence from management, including the factors set forth in the NYSE’s rules.
The HRC Committee has engaged Compensation Advisory Partners LLC (“CAP”) to serve as its independent compensation consultant since March 2014. As discussed in greater detail in the “Compensation Discussion and Analysis” beginning on page 35 below, throughout the year, CAP assists the committee in its analysis and evaluation of compensation matters relating to our executive officers. CAP reports directly to the committee, attends the in-person and telephonic meetings of the committee, and meets with the committee in executive session without management present. CAP also reviews and provides input on committee meeting materials and advises on other matters considered by the committee.
The HRC Committee annually reviews the independence of its compensation consultant. CAP works with management in executing its services to the committee, but does not provide services to management without pre-approval by the committee Chairman. In addition, CAP maintains, and has provided to the committee, a written policy designed to avoid, and address potential, conflicts of interest.
In 2016, neither CAP nor its affiliates provided any services to the company other than serving as the HRC Committee’s independent compensation consultant. The committee considered the Company’s relationship with CAP, assessed the independence of CAP pursuant to SEC and NYSE rules and concluded that there are no conflicts of interest that would prevent CAP from independently representing the committee.
We have succession plans and processes in place for our Chairman and Chief Executive Officer, each of our Vice Chairmen and the team of approximately 700 global senior leaders. Our senior management succession planning process is an organization-wide practice designed to proactively identify, develop and retain the leadership talent that is critical for future business success.
The succession plan for our Chairman and Chief Executive Officer is reviewed regularly by the HRC Committee and the other independent directors. The plan identifies a “readiness” level and ranking for each internal candidate and also incorporates the flexibility to define an external hire as a succession option. Formal succession planning for the rest of our senior leaders is also a regular process, which also includes identifying a rank and readiness level for each potential internal candidate and also strategically planning for external hires for positions where, for example, gaps are identified. The HRC Committee and the Board review the succession plans for all management Executive Committee positions.
Contacting the Board
Interested parties may send communications to our Board or our independent directors or any Board committee through our Lead Director in accordance with the procedures set forth on our website (see “Helpful Resources” on page 88).
Our Corporate Secretary is authorized to open and review any mail or other correspondence received that is addressed to the Board or any individual director unless the item is marked “Confidential” or “Personal.” If so marked and addressed to the Board, it will be delivered unopened to the Lead Director. If so marked and addressed to an individual director, it will be delivered to the addressee unopened. If, upon opening an envelope or package not so marked, the Corporate Secretary determines that it contains a magazine, solicitation or advertisement, the contents may be discarded. Any written communication regarding accounting matters to our Board of Directors are processed in accordance with procedures adopted by the Audit Committee with respect to the receipt, review and processing of, and any response to, such matters.
In addition, all directors are expected to attend each Annual Meeting of stockholders. While our by-laws, consistent with Delaware law, permit stockholder meetings to occur by remote communication, we intend this to be used only in exigent circumstances. Our Board believes that an in-person Annual Meeting provides an important opportunity for stockholders to ask questions.
Our Corporate Governance Guidelines provide that compensation for our independent directors’ services may include annual cash retainers; shares of our common stock; deferred stock units or options on such shares; meeting fees; fees for serving as a committee chair; and fees for serving as a director of one of our subsidiaries. We also reimburse directors for their reasonable out-of-pocket expenses in connection with attendance at Board meetings. In the case of airfare, directors are reimbursed for their travel expenses not exceeding the first-class commercial rate. In addition, corporate aircraft and charter aircraft may be used for directors in accordance with the company’s aircraft usage policy. Directors will also be reimbursed for reasonable out-of-pocket expenses (including tuition and registration fees) relating to attendance at seminars and training sessions relevant to their service on the Board and in connection with meetings or conferences which they attend at the company’s request.
Each year, the CG&N Committee is responsible for reviewing and making recommendations to the Board regarding independent director compensation. The CG&N Committee annually reviews independent director compensation to ensure that it is consistent with market practice and aligns our directors’ interests with those of long-term stockholders while not calling into question the directors’ objectivity. In undertaking its review, the CG&N Committee utilizes benchmarking data regarding independent director compensation of the company’s peer group based on public filings with the SEC, as well as survey information analyzing independent director compensation at U.S. public companies.
Based on its review, each year since 2014, the CG&N Committee has recommended, and the Board has approved, an annual equity award with a value of $130,000 for each independent director. The annual equity award is in the form of deferred stock units that vest on the earlier of one year after the date of the award or on the date of the next Annual Meeting of stockholders, and must be held for as long as the director serves on the Board. The units accrue dividends, which are reinvested in additional deferred stock units. For 2016, this award of deferred stock units was granted shortly after the 2016 Annual Meeting for directors elected or re-elected at such meeting and, similarly, for 2017, this award will be granted shortly after the 2017 Annual Meeting for directors elected or re-elected at such meeting.
For 2016, our independent directors received an annual cash retainer of $110,000, payable in quarterly installments in advance. In addition, the chair of the HRC Committee received an annual cash retainer of $25,000, the chairs of the Audit Committee and the Risk Committee each received an annual cash retainer of $30,000, the chairs of all other committees each received an annual cash retainer of $20,000, each member of the Audit Committee and the Risk Committee received an annual membership fee of $10,000, and our Lead Director received an annual cash retainer of $50,000.
In addition, under our Corporate Governance Guidelines, by the fifth anniversary of their service on the Board, directors are required to own a number of shares of our common stock with a market value of at least five times the annual cash retainer of $110,000. We believe that our independent director compensation is consistent with current market practice, recognizes the critical role that our directors play in effectively managing the company and responding to stockholders, regulators and other key stakeholders, and will assist us in attracting and retaining highly qualified candidates. In the case of Mr. Garden, the CG&N Committee determined that holdings of our securities by Trian (other than hedged or pledged securities) shall be deemed to be beneficially owned by Mr. Garden for purposes of this stock ownership requirement, given his relationship with Trian and that he transfers to Trian, or holds for the benefit of Trian, his security holdings.
Our directors are not permitted to hedge, pledge or transfer any of their deferred stock units and are subject a robust anti-hedging policy as described in further detail under “Compensation Discussion and Analysis — Anti-Hedging Policy” on page 55 below. With the exception of those securities deemed to be beneficially owned by Mr. Garden by virtue of his relationship with Trian, this policy prohibits our directors from engaging in certain transactions involving our securities and requires directors to pre-clear any transaction in company stock or derivative securities with our legal department (including gifts, pledges and other similar transactions).
In the merger we assumed the Deferred Compensation Plan for Non-Employee Directors of The Bank of New York (the “Bank of New York Directors Plan”) and the Mellon Elective Deferred Compensation Plan for Directors (the “Mellon Directors Plan”). Under the Bank of New York Directors Plan, participating legacy The Bank of New York directors continued to defer receipt of all or part of their annual retainer and committee fees earned through 2007. Under the Mellon Directors Plan, participating legacy Mellon directors continued to defer receipt of all or part of their annual retainer and fees earned through 2007. Both plans are nonqualified plans, and neither plan is funded.
Although the Bank of New York Directors Plan and the Mellon Directors Plan continue to exist, all new deferrals of director compensation by any of the independent directors have been made under the Director Deferred Compensation Plan, which was adopted effective as of January 1, 2008. Under this plan, an independent director can direct all or a portion of his or her annual retainer or other fees into either (1) variable funds, credited with gains or losses that mirror market performance of market style funds or (2) the company’s phantom stock.
Director Compensation Table
The following table provides information concerning the compensation of each independent director who served in 2016. Mr. Hassell did not receive any compensation for his service as a director. Mr. Garden has advised us that, pursuant to his arrangement with Trian, he transfers to Trian, or holds for the benefit of Trian, all director compensation paid to him.
(1) Each of Mses. Cook and Morgan was appointed as a director effective December 1, 2016. Ms. Robinson was appointed as a director effective October 3, 2016.
(2) Elected to defer all or part of cash compensation in the Director Deferred Compensation Plan.
(3) Mr. Kogan and Dr. Richardson did not stand for re-election as a director at our 2016 Annual Meeting. Mr. von Schack resigned effective following our 2016 Annual Meeting.
(4) Amount shown represents the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board’s Accounting Standards Codification (or “FASB ASC”) 718 Compensation-Stock Compensation for 3,166 deferred stock units granted to each independent director in April 2016, using the valuation methodology for equity awards set forth in note 15 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2016. As of December 31, 2016, each of Messrs. Donofrio, Echevarria, Garden, Goldstein, Hinshaw, Kelly, Luke, Nordenberg and Scott and Ms. Rein owned 3,208 unvested deferred stock units.
(5) The amounts disclosed in this column for Messrs. Nordenberg and Mr. von Schack represent the sum of the portion of interest accrued (but not currently paid or payable) on deferred compensation above 120% of the applicable federal long-term rate at the maximum rate payable under the Mellon Directors Plan. Under the Mellon Directors Plan, deferred amounts receive earnings based on (i) the declared rate, reflecting the return on the 120-month rolling average of the 10-year T-Note rate enhanced based on years of service and compounded annually, (ii) variable funds, which are credited with gains or losses that “mirror” the market performance of market-style funds or (iii) the company’s phantom stock. The fully enhanced declared rate for 2016 was 4.31%. The present value of Ms. Rein’s accumulated pension benefit under The Bank of New York Retirement Plan for Non-Employee Directors decreased by $5,640. Ms. Rein is the only current director who participates in this plan. Participation in this plan was frozen as to participants and benefit accruals as of May 11, 1999.
(6) The amounts disclosed for Messrs. Donofrio, Richards and Scott and Ms. Rein reflect the amount of a 5% discount on purchases of phantom stock when dividend equivalents are reinvested under the Bank of New York Directors Plan. The amounts disclosed for Messrs. Nordenberg and von Schack reflect the estimated cost of the legacy Mellon Directors’ Charitable Giving Program, which remains in effect for them and certain other legacy Mellon directors. Upon such legacy Mellon director’s death, the company will make an aggregate donation of $250,000 to one or more charitable or educational organizations of the director’s choice. The donations are paid in 10 annual installments to each organization.