Compensation of Executive Officers
Compensation Discussion and Analysis
The Compensation Discussion and Analysis (“CD&A”) provides information about the Company’s 2015 performance, 2015 compensation decisions for our NEOs, listed below, and our disciplined compensation approach.
Laurence D. Fink Chairman and Chief Executive Officer (“CEO”)
Robert S. Kapito President
Charles S. Hallac Co-President (in memoriam)(1)
Robert L. Goldstein Chief Operating Officer (“COO”)
J. Richard Kushel Chief Product Officer (“CPO”) and Global Head of Strategic Product Management(2)
Gary S. Shedlin Chief Financial Officer(“CFO”)
(1) Mr. Hallac was the former Co-President of BlackRock, member of the Company’s GEC and Co-Chair of its Global Operating Committee. He passed away on September 9, 2015.
(2) Mr. Kushel was CPO and Global Head of Strategic Product Management from 2012 to 2016. He was appointed head of the Multi-Asset Strategies Group in February 2016.
Table of Contents
Our compensation philosophy was designed to align management incentives with the long-term interests of our stockholders. Our Board recognizes the importance of executive compensation decisions to our stockholders. The annual say-on-pay advisory vote provides our stockholders with the opportunity to:
- evaluate our executive compensation philosophy, policies and practices;
- evaluate the alignment of the compensation of BlackRock’s NEOs with the Company’s results; and
- cast an advisory vote to approve the compensation of BlackRock’s NEOs.
At the 2015 Annual Meeting of Stockholders, the say-on-pay advisory vote received majority support, with 98% of the votes cast approving the advisory vote on executive compensation. The BlackRock Board of Directors encourages an open and constructive dialogue with stockholders on compensation and other governance issues, as a means to ensure BlackRock’s policies remain aligned with stockholders’ interests.
Stockholder input was considered by the MDCC in instituting the CEO and President compensation framework as well as the BlackRock Performance Incentive Plan (“BPIP”) awards, which are highlighted below and described in further detail in this CD&A. We engaged stockholders in advance of this year’s annual meeting to incorporate their views as we continue to enhance our compensation programs and practices.
BlackRock Stockholder Value Framework
BlackRock is committed to delivering long-term stockholder value. While our financial results can, at times, be affected by global capital market conditions that are beyond our control, management does have the ability to influence key drivers of stockholder value. BlackRock’s framework for long-term value creation is predicated on generating differentiated organic growth, leveraging scale to increase operating margins over time and returning capital to stockholders on a consistent basis, as depicted below. BlackRock’s diversified platform, in terms of style, product, client and geography, enables it to generate more stable cash flows through market cycles, positioning BlackRock to invest for the long-term by striking an appropriate balance between investing for future growth and practical discretionary expense management (refer to “Business Outlook” on page 32 of our 2015 Form 10-K for more details).
BlackRock’s commitment to delivering stockholder value is aligned with the way we manage our business. By putting our clients’ interests first and delivering investment solutions to meet their objectives, we are able to build our business organically, adding new assets under management (“AUM”) and, in turn, driving organic revenue generation. Scale is an important driver of operating leverage that affects our operating margin. We take advantage of scale in numerous areas of our business including through our index-based investment strategies, brand spend and technology platform and the associated Aladdin business. We are committed to a consistent and predictable capital management policy. During 2015, we returned $2.6 billion to our stockholders through share repurchases and dividends.
BlackRock’s 2015 results demonstrated the strength and stability of our diversified, multi-client platform. Full- year results reflected organic growth, continued operating leverage and consistent capital management. Investment performance results across our active and index strategies as of December 31, 2015 are set forth in Item 1 of our 2015 Form 10-K.
Long-term organic asset growth of 4% in 2015 helped drive Organic Revenue (as described on page 37) of $489 million:
- Long-term net inflows of $152 billion reflected positive long-term net inflows across all regions, client businesses and asset classes;
- Flows contributed to long-term annual organic asset growth of 7% in Retail, 13% in iShares and organic decay of (1)% in Institutional client businesses;
- BlackRock Solutions achieved 2% revenue growth; and
- Revenue rose 3% from 2014 to $11,401 million.
Operating income growth was driven by revenue growth and expense discipline:
- As adjusted operating income of $4,695 million was 3% higher than 2014;
- As adjusted operating margin of 42.9% was flat relative to 2014; and
- As adjusted compensation and benefits expense-to-revenue ratio was 34.9%, representing an increase of 70 basis points (“bps”) from 2014.
Our commitment to consistent capital management contributed to growth in EPS and dividends per share. We use our cash first to invest in our business, and then return the balance to shareholders. Our capital repatriation strategy is balanced between dividends, where we target a 40-50% payout ratio, and a consistent share repurchase program:
- The repurchase of $1.1 billion of outstanding shares drove a reduction in net share count of 1.3 million shares of BlackRock common stock;
- Full-year as adjusted diluted EPS of $19.60 increased 1% from $19.34 in 2014; and
- The payment of an annual dividend of $8.72 per share reflected an increase of 13% from $7.72 in 2014.
Amounts in this section, where noted, are shown on an “as adjusted” basis. For a reconciliation with generally accepted accounting principles in the United States, please see our 2015 Form 10-K.
Compensation Program Objectives
Our compensation program is designed to:
- appropriately balance the Company’s financial results between stockholders and employees;
- determine overall compensation based on a combination of Company and individual employee performance;
- align the interests of our senior-level employees, including NEOs, with those of stockholders through the use of long-term performance-based equity awards and accumulation of meaningful share ownership positions;
- discourage excessive risk-taking; and
- attract, motivate and retain high-performing employees.
Enhancements to CEO and President Compensation Structure
Our compensation program for NEOs continues to include base salary, annual incentive awards (cash and deferred equity) and long-term performance-based incentive awards, as described on pages 39 to 42. In 2014, the MDCC approved an enhanced compensation framework to more closely align pay and performance for the CEO and President, Mr. Fink and Mr. Kapito, respectively.
Under this program, target annual cash incentive awards (“cash bonus”) have been established at $8.0 million and $6.5 million for the CEO and President, respectively. Actual cash bonuses can range from 0% up to a maximum of 125% ($10.0 million and $8.125 million for the CEO and President, respectively) of the target amount. To determine the actual cash bonus amount, the MDCC used the framework below to assess individual performance.
The categories are supported by performance measures detailed on pages 45 and 46. The MDCC maintains discretion in setting the final awards in order to determine the quality of the outcomes and to reflect the executives’ ability to adapt to the evolving business environment throughout the year.
In addition to the annual cash incentive awards, the MDCC expects to continue to make annual equity awards to both Mr. Fink and Mr. Kapito, with at least half of such equity awards being long-term and contingent on future financial or other business performance requirements.
BlackRock Performance Incentive Plan (“BPIP”)
BlackRock believes in aligning the interests of our senior-level employees, including NEOs, with those of stockholders, and in closely aligning compensation with long-term performance.
In January 2015, the MDCC approved a new form of performance-based equity award, referred to as BPIP awards, following a comprehensive review of future performance goals and expectations, potential pay outcomes for employees, stockholder input and market trends with the advice of the MDCC’s independent compensation consultant, Semler Brossy. BPIP was designed to further align compensation with management’s long-term creation of stockholder value.
Each NEO was granted a BPIP award in January 2015 as part of his incentive compensation in respect of 2014 performance. Similarly, a portion of each NEO’s incentive compensation for 2015 was in the form of a BPIP award granted in January 2016. In addition to recognizing an NEO’s performance in the prior year, the BPIP awards are intended to incentivize continued performance and long-term focus over a multi-year period. The January 2016 BPIP grants are described in further detail below.
BPIP is tied to two key drivers of stockholder value – Organic Revenue and Operating Margin, as adjusted – that are directly influenced by BlackRock’s senior-level employees across market cycles. Organic Revenue is a measure of the annualized revenue impact of BlackRock’s ability to generate net new business and bring new client relationships onto Aladdin. Operating Margin, as adjusted, is a measure of BlackRock’s ability to efficiently manage our expense base in the context of the revenue we generate. BlackRock is focused on achieving the right balance of investing in our business to drive growth in Organic Revenue, and the impact those investments have on our expense base and Operating Margin, as adjusted.
BPIP awards are granted in the form of RSUs that vest after three years. The number of shares vesting under BPIP is based on the attainment of specified Organic Revenue and Operating Margin, as adjusted, levels.
The January 2016 BPIP awards have a three-year performance period that commenced on January 1, 2016 and ends on December 31, 2018. Each BPIP award consists of a “base” number of RSUs granted to the recipient (refer to “January 2016 BPIP Grant: Example” on page 39). Distributions will be in the form of common stock. The number of shares that a recipient ultimately receives upon settlement will be equal to the base number of RSUs granted, multiplied by a percentage determined in accordance with the Award Determination Matrix below. The percentage will be determined by BlackRock’s annual average Organic Revenue and Operating Margin, as adjusted, during the performance period; performance between two adjacent points on the matrix will be extrapolated. A summary version of the matrix is set forth below.¹
(1) Organic Revenue and Operating Margin, as adjusted, are non-GAAP financial measures. Organic Revenue for a year is equal to the sum of (i) annualized investment advisory and administration fees generated by the Company in such year relating to the sale/redemption of products or the provision of services to new or existing clients in accordance with the Company’s AUM policy (excluding (A) fees from the Company’s cash management and securities lending businesses and (B) fees derived from capital gains and dividend reinvestment) and (ii) annualized recurring revenue generated by the Company in such year from the sale/notified loss of Aladdin products and services to new or existing clients. For a description of how Operating Margin, as adjusted, is calculated, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” on our 2015 Form 10-K.
If target level performance is achieved (i.e., during the performance period, BlackRock has average annual Organic Revenue equal to $450 million and average annual Operating Margin, as adjusted, equal to 42.0%), a participant will receive a number of shares equal to 100% of the base number of units granted to the participant. If during the performance period, BlackRock has zero or negative average Organic Revenue and average Operating Margin, as adjusted, of 36.0% or less, the participant will not be entitled to a distribution of any shares under BPIP. The maximum number of shares a participant may receive under BPIP is equal to 165% of the base number of units. (A participant will receive the maximum number of shares if, during the performance period, BlackRock were to deliver average Organic Revenue equal to or greater than $850 million and average Operating Margin, as adjusted, equal to or greater than 48%).
As shown in the example below, if, during the performance period, BlackRock were to deliver average Organic Revenue of $650 million and average Operating Margin, as adjusted, of 42%, then a recipient receiving a BPIP award valued at $2.0 million in January 2016 would receive a distribution of 7,834 shares, or 116% of the base number of RSUs granted.
Compensation Structure for NEOs
Our commitment to an executive compensation program designed to align pay with performance and embody the other principles set out on page 36 is demonstrated in the total annual compensation structure described below.
* Excludes Mr. Hallac, the former Co-President of BlackRock, who passed away on September 9, 2015.
(1) All grants of BlackRock equity (including the portion of the annual incentive awards granted in RS or RSUs and the BPIP awards) are approved by the MDCC under the Second Amended and Restated 1999 Stock Award and Incentive Plan, which has been previously approved by stockholders. The Second Amended and Restated 1999 Stock Award and Incentive Plan allows multiple types of award vehicles to be granted.
(2) For 2015 annual incentive awards, the value of the equity portion of the bonus was converted into RS or RSUs by dividing the award value by $296.12, which represented the average of the high and low prices per share of common stock of BlackRock on January 19, 2016.
(3) For 2015 long-term incentive BPIP awards, the award value is converted into a number of RSUs by dividing the award value by $296.12, which represented the average of the high and low prices per share of common stock of BlackRock on January 19, 2016.
(4) For NEOs other than the CEO and President, higher annual incentive awards are subject to higher deferral percentages, in accordance with the Company-wide deferral policy, as detailed on page 42.
Compensation mix percentages shown above are based on 2015 year-end compensation decisions for individual NEOs (excluding the CEO and President) by the MDCC. For NEOs other than the CEO and President, the annual incentive award is split between cash and deferred equity in accordance with the Company-wide deferral policy.
NEO Compensation Decisions
Following a review of full-year business and individual NEO performance, the MDCC determined 2015 total annual compensation outcomes for each NEO as outlined in the table below. Specific 2015 business and individual NEO performance considerations are further detailed on pages 45 to 47.
(1) Mr. Hallac, former Co-President of BlackRock, member of the Company’s GEC and Co-Chair of its Global Operating Committee, passed away on September 9, 2015.
The table above displays compensation in a format that differs from the required format applicable to the “2015 Summary Compensation Table” on page 52. It also shows the MDCC’s compensation decisions relating to individual NEO performance for the 2015 fiscal year (and, with respect to BPIP awards, in anticipation of continued performance and long-term focus over a multi-year period). The annual incentive award amounts shown above detail the portion of 2015 annual incentive that was awarded as deferred BlackRock equity in January 2016, separate from the 2015 annual incentive that was awarded as cash. In conformance with SEC requirements, the Summary Compensation Table reports equity grants in the year made. Accordingly, the 2015 equity grants (which were made in January 2016), shown in the table above, do not appear in the 2015 Summary Compensation Table but will appear in the 2016 Summary Compensation Table.
|Base Salary||Annual Incentive Award||Long-Term Incentive Award (“BPIP”)|
|How it is Paid|
|For CEO and President|
For Other NEOs
(1) In 2014, the Company adopted a new annual incentive program for the CEO and President. Refer to “Enhancements to CEO and President Compensation Structure” on pages 36 to 37.
(2) For 2015 deferred equity and long-term incentive BPIP awards, the award value was converted into a number of RS or RSUs by dividing the award value by $296.12, which represented the average of the high and low prices per share of common stock of BlackRock on January 19, 2016.
Compensation Policies and Practices
Our commitment to design an executive compensation program that is consistent with responsible financial and risk management is exemplified in the following policies and practices:
|What We Do||What We Don't Do|
|✔ Review pay and performance alignment;|
✔ Balance short- and long-term incentives, cash and
equity and fixed and variable pay elements;
✔ Maintain a clawback policy that allows for the recoupment of annual and long-term performance-based compensation in the event that financial results are restated due to the actions of an employee;
✔ Apply a one-year minimum vesting requirement to awards granted under our stock incentive plan, subject to limited exceptions;
✔ Maintain robust stock ownership and retention guidelines;
✔ Maintain a trading policy that:
✔ Limit perquisites;
✔ Assess and mitigate risk in compensation plans, as described in “Risk Assessment of Compensation Plans” on page 49;
✔ Hold an advisory vote on executive compensation on an annual basis in order to provide stockholders with a frequent opportunity to give feedback on compensation programs; and
✔ Review the independence of the MDCC’s independent compensation consultant on an annual basis.
|✗ No ongoing employment agreements or guaranteed compensation arrangements with our NEOs;
✗ No arrangements with our NEOs providing for automatic single trigger vesting of equity awards upon a change-in-control or transaction bonus payments upon a change-in-control;
✗ No dividends or dividend equivalents on unearned RS or RSUs; no dividend equivalents on stock options or stock appreciation rights;
✗ No repricing of stock options;
✗ No cash buyouts of underwater stock options;
✗ No tax reimbursements for perquisites or tax gross-ups for excise taxes incurred due to the application of Section 280G of the Internal Revenue Code;
✗ No supplemental retirement benefit arrangements with our NEOs; and
✗ No supplemental severance benefit arrangements with our NEOs outside of the standard severance benefits under BlackRock’s Severance Pay Plan (the “Severance Plan”).
Compensation Determination Process
Compensation Decision Timeline and Process
The timing and process for the determination of individual NEO compensation by the MDCC is designed to ensure that compensation is appropriately aligned with the financial performance of BlackRock while also ensuring recognition of individual NEO leadership and operating contributions toward achieving the overall strategic priorities of the Company.
* Signifies Board of Directors meetings. Board topics include Financial, Business, Market, Talent Reviews and/or Committee updates.
- At the beginning of each year, management reviews the annual budget with the MDCC. The MDCC and CEO establish financial and business goals and objectives. These goals and objectives provide the context for an evaluation of performance at year-end.
- The MDCC regularly meets with the CFO to review YTD actual and projected financial information and reviews full-year financial information after year-end.
- Throughout the year, all members of the Board review strategic plans, financial and business results, talent development and succession planning, as well as other areas relevant to the Company’s performance.
- The MDCC also reviews other measures of the Company’s performance, market intelligence on compensation and information about market conditions. In December, management reports on absolute and/or relative performance compared to major competitors, year-over-year and/or budget (e.g., growth in revenues, operating income, net income, operating margin and net new inflows of AUM). The MDCC’s compensation consultant also provides an independent report on publicly disclosed financial information and provides compensation information for certain publicly traded asset management companies to understand performance and trends in compensation among public asset managers (as set forth in “Compensation Consultant” on pages 47 to 48).
- In December, during an executive session with the MDCC, the CEO reviews the performance of all individual NEOs against business goals and objectives. During an executive session that excludes all members of management, the non-management directors assess the performance of the CEO against business goals and objectives.
- In January, the MDCC reviews year-end financial results and other performance metrics as well as external data for comparison. The MDCC then determines final total annual incentive award amounts for each of our NEOs. The MDCC determines annual cash incentive award amounts for the CEO and President, utilizing the annual cash incentive award framework, based on financial performance, business strength, and organizational strength, supported by performance measures. The MDCC also determines equity awards made through the long-term incentive BPIP awards. This timing allows the MDCC to consider full-year individual NEO performance assessments along with full-year financial results and non-financial results in its final determination of compensation. The MDCC also determines the Award Determination Matrix for the three-year BPIP performance cycle. In setting financial performance requirements for the BPIP, the MDCC considers past performance and analyst forecasts for BlackRock. Compensation decisions are made on a total annual compensation basis, with consideration of each element of compensation, as described on pages 41 to 42.
Individual Compensation Decision Factors for CEO and President
Mr. Fink is responsible for developing and guiding BlackRock’s long-term strategic direction to deliver results for stockholders. In alignment with the compensation structure outlined on pages 36 to 37, the MDCC determined Mr. Fink’s total annual compensation based on an assessment of performance in the following three categories: financial performance, business strength, and organizational strength. In 2015, BlackRock accomplished the following under Mr. Fink’s leadership and his partnership with the GEC:
- Generated strong and consistent financial results despite a challenging beta and foreign exchange environment; captured long-term net inflows of $152 billion and delivered strong organic growth that significantly outperformed peers by leveraging BlackRock’s diversified, multi-client platform, enhanced global footprint and broad product range.
- Increased market share with key clients and distributors; maintained momentum across the Institutional platform by delivering organic revenue growth for the second consecutive year; achieved positive flows across the Retail and iShares platforms including flows of more than $1 billion into 65 distinct Retail and iShares funds; and
- Enhanced client experience by improving and further leveraging the Aladdin platform.
- Continued to develop a diverse pipeline of senior talent through succession and a variety of leadership programs; introduced a new, firm-wide performance ratings system; and defined critical capabilities for the Company’s future growth.
Based on this assessment, the MDCC awarded Mr. Fink $26.0 million in 2015 total annual compensation, representing 0% change compared to 2014.
Mr. Kapito is responsible for executing BlackRock’s strategic plans and overseeing the global business operations of the Company. He ensures connectivity and coordination of operating processes across all groups in the organization, in part through the Global Operating Committee, which he leads. He is also responsible for spearheading initiatives to drive investment performance and the results within each of BlackRock’s businesses. In alignment with the compensation structure on pages 36 to 37, the MDCC determined Mr. Kapito’s total annual compensation based on an assessment of performance in the following three categories: financial performance, business strength and organizational strength. In 2015, Mr. Kapito:
- In addition to the organic growth results highlighted above for Mr. Fink, Mr. Kapito provided day-to-day oversight of the business that was instrumental in achieving a 42.9% Operating Margin, as adjusted.
- Assumed more direct oversight over the alpha strategies teams where investment performance improved across the active platform, with 80% of AUM above benchmark or median for the 1 year period, compared to 71% in 2014.
- Continued to execute against strategic initiatives; accelerated growth of the alternatives business through the launch of the global credit platform and continued expansion of BlackRock’s infrastructure business; oversaw retail technology initiatives that were focused on increased sales force productivity; introduced new value- additive technology and tools like iRetire® and Aladdin Portfolio Builder to help financial advisors scale their practice; and delivered strong growth across the regions (EMEA, Asia-Pacific and Latin America).
- Drove acquisition and retention of key senior-level talent and minimized portfolio manager turnover across the investment platform.
Based on this assessment, the MDCC awarded Mr. Kapito $19.985 million in 2015 total annual compensation, representing 0% change compared with 2014.
Individual Compensation Decision Factors for Other NEOs
The determination of each other NEO’s compensation is based on (1) an assessment of the individual NEO’s contributions to overall Company results and individual business results throughout the year, (2) each NEO’s influence on setting long-term strategy and in executing long-term objectives and (3) considerations relating to the year-over- year change in the total bonus pool.
Inputs to individual NEO total annual compensation decisions include:
Financial factors including, but not limited to, revenue, operating income, EPS, operating margin and compensation and profitability margins;
Non-financial factors including, but not limited to, individual NEO performance, overall investment performance, client relationship strength and organizational discipline; and
Other considerations including, but not limited to, external market conditions and market intelligence on competitive compensation. See “Market Data” on page 47.
The deferred equity component of each of our other NEO’s annual incentive award is determined by a Company- wide deferral policy. Higher annual incentive awards are subject to higher deferral percentages. All long-term equity- based incentive awards granted under BPIP are funded and awarded separately from the total bonus pool and are determined on a subjective basis as part of the MDCC’s total annual compensation decision.
In addition to the 2015 Company results described in “2015 Performance” beginning on page 34, the following information provides highlights of specific 2015 business and individual NEO performance considered by the MDCC in the compensation decisions for our NEOs.
Mr. Hallac, as Co-President, instilled the BlackRock culture and spirit of innovation throughout the Company and inspired the firm to transform through the use of technology. Mr. Hallac, former Co-President of BlackRock, member of the Company’s GEC and Co-Chair of its Global Operating Committee, passed away on September 9, 2015. The Committee recognized Mr. Hallac’s contributions by awarding a prorated cash bonus award amount to his estate that was 5% lower than his 2014 variable compensation level.
Mr. Goldstein, as COO, oversaw the day-to-day global operations of the Company. He coordinated a firm-wide budgeting process aimed at optimizing levels of investment spend and expense discipline. Mr. Goldstein led business process and technology efficiency programs, resulting in continued streamlining of the operating model in support of Company scale. He continued to lead BlackRock Solutions, which achieved revenue of $646 million in 2015, an increase of 2% from 2014, and he contributed to talent planning among Company leaders and within the technology field.
Mr. Kushel, as CPO, led Strategic Product Management, BlackRock Investment Stewardship and the BlackRock Investment Institute (“BII”). In 2015, he strengthened the Company’s product positioning and governance of product performance, and focused on improved new product revenue and flows. He led the successful launch of a suite of Impact products, realigned the BII team to expand its influence with both our investment professionals and clients and continued to expand the influence of BlackRock Investment Stewardship through increased quality engagements.
Mr. Shedlin, as CFO, oversaw financial reporting and controls for the Company and also led the corporate finance function. He was also responsible for financial planning and analysis, treasury, tax, investor relations and corporate development. During 2015, he continued to develop the Company’s outreach with key investors and regulators. He oversaw the completion of three strategic acquisitions (BlackRock Kelso Capital Advisors, Infraestructura Institucional and FutureAdvisor). In addition, he continued to optimize the Company’s capital management strategy by executing a consistent and predictable dividend and share repurchase policy. He also continued to guide the Company’s priorities and resource deployment to enable disciplined growth.
Management engages McLagan Partners (“McLagan”), a compensation consultant that specializes in conducting proprietary compensation surveys and interpreting compensation trends. Management used McLagan surveys² to (1) evaluate BlackRock’s competitive position overall, as well as by functional business and by title and (2) make comparisons on an individual NEO basis, where survey data was available and appropriate. Survey results were analyzed to account for differences in the scale and scope between BlackRock and other survey participants.
The MDCC reviews market data to understand compensation practices and trends in the broader marketplace. Individual NEO compensation decisions are primarily based on assessments of individual NEO and Company performance.
²Confidentiality obligations to McLagan and to its survey participants prevent BlackRock from disclosing the companies included in the surveys. Survey participants include stand-alone, publicly traded asset management companies as well as privately held or subsidiary asset management organizations for which publicly available compensation data is not available.
In 2015, the MDCC continued to engage Semler Brossy to provide objective advice on the compensation practices and the competitive landscape for the compensation of BlackRock’s executive officers.
Semler Brossy reports directly to the MDCC and interacts with Company management when necessary and appropriate in carrying out assignments. Semler Brossy provides services only to the MDCC as an independent consultant and does not have any other consulting engagements with, or provide any other services to, BlackRock. The independence of Semler Brossy has been assessed according to factors stipulated by the SEC and the MDCC concluded that no conflict of interest exists that would prevent Semler Brossy from independently advising the MDCC.
A representative from Semler Brossy met with the MDCC in formal Committee meetings and at key points throughout the year to provide objective advice to the MDCC on existing and emerging compensation practices among financial services companies in addition to companies in the asset management sector. Semler Brossy reviewed publicly disclosed compensation information for certain publicly traded asset management companies to understand trends in compensation among public asset managers, including:
|Affiliated Managers Group, Inc. |
AllianceBernstein Holding L.P.
Ameriprise Financial, Inc.
Bank of New York Mellon Corp.
|Eaton Vance Corp. |
Federated Investors, Inc.
Franklin Resources, Inc.
|Legg Mason, Inc.
Northern Trust Corp.
State Street Corp.
T. Rowe Price Group, Inc
The broader suite of companies in the McLagan analyses, which include publicly traded companies as well as private companies, offers additional comparisons through which BlackRock can understand the competitiveness of its executive compensation programs overall, by functional business and by title/individual. Semler Brossy independently reviewed the results and the companies included in the McLagan analyses.
Additional Details on Compensation Policies and Practices
Stock Ownership, Clawback Policy, Benefits, Severance, Perquisites and Tax Reimbursements
Stock Ownership Guidelines
Our stock ownership guidelines require the Company’s GEC members to own and maintain a target number of shares, the dollar amount of which is set out below. GEC members are required to accumulate a target number of shares (i.e., shares owned outright, not including unvested shares or unexercised stock options). Until these stock ownership guidelines are met, they must retain 35% of the net (after-tax) shares delivered from BlackRock equity awards. As of December 31, 2015, all of our NEOs exceeded the stated stock ownership guidelines.
- $10 million for the CEO;
- $5 million for the President; and
- $2 million for all other GEC members.
All performance-based compensation (including annual and long-term incentive awards and all equity compensation) is subject to BlackRock’s Clawback Policy and is subject to recoupment if an employee is found to have engaged in fraud or willful misconduct that caused the need for a significant restatement of BlackRock’s financial statements.
BlackRock provides medical, dental, life and disability benefits and retirement savings vehicles in which all eligible employees participate. BlackRock makes contributions to 401(k) accounts of its NEOs on a basis consistent with other employees. None of our NEOs participate in any Company-sponsored defined benefit pension program.
Other benefits include voluntary deferrals of all or a portion of the cash element of the NEO’s annual incentive awards pursuant to the BlackRock, Inc. Voluntary Deferred Compensation Plan (the “VDCP”).
NEOs are eligible for standard severance benefits under the Severance Plan in the event of involuntary termination of employment without cause (as defined under the Severance Plan) by BlackRock.
The Severance Plan provides salary continuation of two weeks per year of service with a minimum of 12 weeks and a maximum of 54 weeks to all U.S.-based employees who are involuntarily terminated without cause in conjunction with a reduction in force or position elimination.
Perquisites and other benefits available to NEOs, such as financial planning, investment opportunity and personal use of travel services are considered a reasonable part of the executive compensation program.
A financial planning perquisite is offered to NEOs. In addition, investment offerings may be provided without charging management or performance fees consistent with the terms offered to other employees who meet the same applicable legal requirements.
Messrs. Fink and Kapito are required by the Board to utilize private airplane services for all business and personal travel in the interest of protecting their personal security. NEOs reimburse BlackRock for a portion of the cost of personal airplane services.
Transportation services are provided by BlackRock and/or third-party suppliers and are made available to its NEOs for business and personal use.
The compensation attributed to each of our NEOs for 2015 for perquisites is described in Footnote (3) to the “2015 Summary Compensation Table” on page 52.
BlackRock did not provide tax reimbursements for any perquisites or other compensation paid to our NEOs.
Risk Assessment of Compensation Plans
Our employee compensation program is structured to discourage excessive and unnecessary risk taking. The Board recognizes that potential risks to the Company may be inherent in compensation programs. As such, the Board reviews the Company’s executive compensation program annually to ensure that it is structured so as not to unintentionally promote excessive risk taking. As a result of this annual review, the Company believes that the compensation plans are appropriately structured and do not pose risks that could have a materially adverse effect on BlackRock.
The MDCC considers the following when evaluating whether employee compensation plans and policies encourage BlackRock employees to take unreasonable risks:
- Performance goals that are reasonable in light of past performance and market conditions;
- Longer-term expectations for earnings and growth;
- The base salary component of compensation does not encourage risk taking because it is a fixed amount;
- A greater portion of annual compensation is deferred at higher annual incentive award levels; and
- Deferred compensation is delivered in the form of equity, vests over time, and the value is therefore dependent on the future performance of BlackRock.
Essential to the success of BlackRock’s business model is the ability to both understand and manage risk. These fundamentals are inherent in the design of its compensation programs, which reward employees for strong performance in their management of client assets and in managing risk within the risk profiles appropriate to each of BlackRock’s clients. As such, employees are not rewarded for engaging in high-risk transactions outside of established parameters.
The Company’s compensation practices reinforce the fundamentals of BlackRock’s business model in that they:
- Do not provide undue incentives for short-term planning or action toward short-term financial rewards;
- Do not reward unreasonable risk; and
- Provide a reasonable balance between the risks that are inherent in the business of investment management, risk management and advisory services.
The Company’s operating income, on which compensation is based, is not reliant on the Company’s seed or co- investments. While BlackRock may make seed or co-investments in its various funds alongside clients, it does not engage in proprietary trading.
Total Bonus Pool Determination
The MDCC approves annually a total bonus pool for BlackRock employees as a group, which includes the NEOs. The total bonus pool does not serve as a basis for the MDCC’s compensation decisions for the Company’s NEOs, but as indicated, the MDCC may make general comparisons to increases or decreases in the size of the total bonus pool when making individual NEO compensation determinations. For 2015, the MDCC approved a total bonus pool of approximately $2.19 billion (including $210 million for long-term incentive awards), which was 3% higher than the total bonus pool approved in 2014.³
³Includes payments to employees who departed BlackRock during the year.
Tax Deductibility of Compensation
Section 162(m) of the Internal Revenue Code generally limits the tax deductibility of compensation to any “covered employee” of a public company to $1.0 million during any fiscal year unless such compensation qualifies as “performance-based.” In general, the Company intends to structure its incentive compensation arrangements in a manner that would comply with these tax rules. However, the MDCC maintains the flexibility to pay non-deductible incentive compensation if it determines it is in the best interest of the Company and its stockholders.
Separately from determining the total bonus pool, the MDCC establishes the method for calculating the Section 162(m) compliant aggregate cap (the “Aggregate 162(m) Cap”) for annual incentive awards to each of our NEOs pursuant to the stockholder-approved Amended and Restated BlackRock, Inc. 1999 Annual Incentive Performance Plan (the “Performance Plan”). The Aggregate 162(m) Cap, as well as each NEO’s maximum allocable portion of the overall Aggregate 162(m) Cap (the “Individual 162(m) Caps”), are calculated each year in accordance with the requirements of Section 162(m) of the Internal Revenue Code. Neither the Aggregate 162(m) Cap nor the Individual 162(m) Caps serve as a basis for the MDCC’s compensation decisions for our NEOs; instead, these caps serve to establish a ceiling on the amount of annual incentive awards which the MDCC can award to the NEOs on a tax deductible basis. In determining final awards for each NEO, the MDCC ensures that such awards do not exceed the executive officer’s Individual 162(m) Cap.
Management Development and Compensation Committee Interlocks and Insider Participation
The members of the MDCC during 2015 were Ms. Mills and Messrs. Komansky (Chairperson), Gerber, Grosfeld and Maughan. Mr. Nixon joined the MDCC in March 2016. No member of the MDCC was, during the fiscal year, an officer or employee, or formerly an officer or employee, involved in any related person transactions requiring disclosure in this Proxy Statement. No executive officer of BlackRock served (i) as a member of the Compensation Committee (or other Board committee performing equivalent functions or, in the absence of any such committee, the entire Board of Directors) of another entity, one of whose executive officers served on the MDCC of BlackRock, (ii) as a director of another entity, one of whose executive officers served on the MDCC of BlackRock, or (iii) as a member of the Compensation Committee (or other Board committee performing equivalent functions or, in the absence of any such committee, the entire Board of Directors) of another entity, one of whose executive officers served as a director of BlackRock.
Report of the Management Development and Compensation Committee
The following is the MDCC report to stockholders. In accordance with the rules of the SEC, this report shall not be incorporated by reference into any of BlackRock’s future filings made under the Exchange Act or under the Securities Act and shall not be deemed to be soliciting material or to be filed under the Exchange Act or the Securities Act.
Management Development and Compensation Committee Report on Executive Compensation for Fiscal Year 2015
The MDCC has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.
MEMBERS OF THE MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE
David H. Komansky, Chairperson
Murry S. Gerber
Sir Deryck Maughan
Cheryl D. Mills
Gordon M. Nixon
Summary of Compensation
The following 2015 Summary Compensation Table sets forth information concerning compensation provided by BlackRock for the years indicated to the NEOs.
(1) These amounts represent the cash portion of discretionary annual bonuses for the respective periods awarded pursuant to the Performance Plan. To secure the deductibility of annual incentive awards (including cash bonuses) awarded to the NEOs, each NEO’s total incentive award is awarded under the Performance Plan, which permits deductibility of compensation paid to the NEOs under Section 162(m) of the Internal Revenue Code. Satisfaction of the performance criteria under the Performance Plan determines only the maximum amount of incentive compensation that may be awarded to NEOs for the fiscal year. The amount of incentive compensation awarded to each NEO in January 2016 (for fiscal year 2015) was based on subjective criteria, as more fully described on pages 41 to 42 of the “Compensation Discussion and Analysis”, and was less than the portion of the performance-based bonus pool available for awards to each NEO under the Performance Plan.
As described on page 40 of the “Compensation Discussion and Analysis”, on January 19, 2016, Messrs. Fink, Kapito, Goldstein, Kushel and Shedlin were awarded RS or RSUs as part of their discretionary annual bonuses for the 2015 fiscal year. In accordance with FASB ASC Topic 718, these awards had grant date values of $4,095,000, $3,037,500, $1,900,000, $1,540,000 and $1,400,000, respectively, based on the average of the high and low prices per share of BlackRock common stock on January 19, 2016, which was calculated to be $296.12. Additionally, Messrs. Fink, Kapito, Goldstein, Kushel and Shedlin received discretionary BPIP awards consisting of performance-based RSU awards with grant date values of $12,285,000, $9,112,500, $2,000,000, $1,890,000 and $1,750,000, respectively. The base number of units granted pursuant to BPIP awards was determined by dividing the individual’s award value by the average of the high and low prices per share of BlackRock common stock on January 19, 2016.
(2) Reflects the grant date fair value of awards made during each calendar year as determined pursuant to FASB ASC Topic 718. For complete valuation assumptions of the awards, see Note 14 to the consolidated financial statements in our 2015 Form 10-K. The amount included with respect to the BPIP awards granted in January 2015 is based on the grant date fair value assuming target level of performance. If maximum level of performance had been assumed, the grant date fair value of the BPIP awards would have been (i) $19,774,757 for Mr. Fink, (ii) $15,195,984 for Mr. Kapito, (iii) $5,774,357 for Mr. Hallac, (iv) $3,299,633 for Mr. Goldstein, (v) $3,118,077 for Mr. Kushel, and (vi) $2,969,532 for Mr. Shedlin. For Mr. Shedlin, the 2013 awards represent RSUs granted on May 29, 2013. The RSUs were awarded in connection with Mr. Shedlin’s commencement of employment with BlackRock and the resulting forfeiture of deferred compensation awards granted by his former employer. The vesting schedule of the RSUs mirrored the schedule on which the forfeited awards would have vested had Mr. Shedlin remained with his prior employer.
(3) $7,908,750 of the amount shown for Mr. Hallac represents an amount paid to Mr. Hallac’s estate in February 2016 in respect of his services to the Company and has been included here because it was paid following his passing. For each of the NEOs, $18,000 was attributable to contributions made by BlackRock under its tax-qualified defined contribution (401(k)) plan in 2015. For Messrs. Fink, Kapito, Hallac, Goldstein, Kushel and Shedlin, $0, $31,175, $31,175, $5,723, $31,175 and $0, respectively, was attributable to financial planning services. In 2015, $175,000 was attributable to personal use by each of Messrs. Fink and Kapito, respectively, of company-provided aircraft services. These amounts reflect the incremental cost to BlackRock to provide the aircraft services. Aircraft incremental cost is based on, as applicable, (i) variable operating cost per flight hour for the BlackRock corporate aircraft (including fuel and variable maintenance expenses) plus any trip-specific incremental costs (such as crew expenses, catering expenses and fees associated with landing, parking and flight planning) or (ii) actual charter cost, in each case, less reimbursement received from the NEO. Messrs. Fink and Kapito are required by the Board to utilize these airplane services for all business and personal travel in the interest of protecting their personal security. For more information regarding perquisites, see “—Compensation Discussion and Analysis – Additional Details on Compensation Policies and Practices.” No nonqualified deferred compensation earnings were determined to be above-market. None of the NEOs participate in any BlackRock-sponsored defined benefit pension plans.
(4) Mr. Hallac, former Co-President of BlackRock, member of the Company’s GEC and Co-Chair of its Global Operating Committee, passed away on September 9, 2015.
(5) Mr. Goldstein was not a named executive officer in 2013.
(6) Mr. Kushel was not a named executive officer in 2013 or 2014.
(7) Mr. Shedlin joined BlackRock on March 11, 2013 and became the Chief Financial Officer of BlackRock on May 9, 2013.
2015 Grants of Plan-Based Awards
The following table sets forth information concerning non-equity and equity incentive plan-based compensation
provided by BlackRock in 2015 to our NEOs.
(1) Grant date is the date on which approved award values were converted to a number of RSs or RSUs based on the average of the high and low prices of BlackRock common stock on that date.
(2) These January 16, 2015 awards represent grants of RSUs/RS awarded to Messrs. Fink, Kapito, Hallac, Goldstein, Kushel and Shedlin as part of their 2014 bonus awards and represent the stock portion of such annual bonuses. These awards vest one-third on each of the first three anniversaries of January 31, 2015. At the time of vesting, the NEOs are entitled to payment of accrued dividends with respect to the shares underlying the vested RSUs/RS.
(3) These January 16, 2015 awards represent BPIP awards granted to Messrs. Fink, Kapito, Hallac, Goldstein, Kushel and Shedlin in respect of services performed in 2014. To determine the base number of RSUs comprising each BPIP award, the award value was divided by the grant price ($343.855). The grant price represents an average of the high and low price of BlackRock common stock on January 16, 2015 (two trading days following earnings release for the fourth quarter of 2014). The BPIP awards will be eligible to vest on January 31, 2018, subject to the Company’s attainment of the applicable financial targets during the three-year performance period commencing on January 1, 2015 and ending on December 31, 2017. The number of shares of common stock each NEO will receive upon settlement of the award will be equal to the base number of RSUs, multiplied by a percentage determined by application of the award determination matrix set forth in the award agreement. The percentage multiplier is determined by the Company’s average annual Operating Margin, as adjusted, and Organic Revenue during the performance period. If performance is below the minimum thresholds set forth on the award determination matrix for both performance metrics, the award payout will be zero. If the Company attains the maximum (or greater) level of performance for both performance metrics, the award payout will be equal to 165% of the base number. Performance at target would result in the NEO receiving 100% of the base number.
(4) Reflects the grant date fair value of awards as determined pursuant to FASB ASC Topic 718. For complete valuation assumptions of the awards, see Note 14 to the consolidated financial statements in our 2015 Form 10-K. The amount included with respect to the BPIP awards is based on the grant date fair value assuming target level of performance.
2015 Outstanding Equity Awards at Fiscal Year-End
(1) Amounts reflect the year-end value of RS, RSUs, Challenge Awards and BPIP awards, based on the closing price of $340.52 per share of BlackRock common stock on December 31, 2015. With respect to the BPIP awards, the value shown is based on the number of shares that the NEO would receive upon settlement of the award assuming actual performance through December 31, 2015 (113% of target) continued through the remainder of the three-year performance period.
(2) These RS/RSUs vest one-third on January 31 of each of the first three years after the year in which the grant date occurs.
(3) These Challenge Award RSUs require that separate 15%, 25% and 35% stock price targets (based on the grant price) be achieved during the six-year term of the awards in order for each respective tranche to be delivered. The stock price targets may be met at any time during the award term, but the delivery of shares may occur only on the fourth, fifth or sixth anniversary of January 31 of the year of grant, provided that, the price on the delivery date meets the lowest stock price target. Any tranche of the award that has not met the applicable stock price target will be forfeited on the sixth anniversary of January 31 of the year of grant. As of December 31, 2015, all three of the stock price targets related to the Challenge Awards granted on January 20, 2012 and January 18, 2013 had been met. As of December 31, 2015, none of the three stock price targets related to the Challenge Awards granted on January 17, 2014 had been met. The Challenge Awards granted on January 20, 2012 became fully vested on February 1, 2016 and have been settled. See “Potential Payments Upon Termination or Change in Control” beginning on page 55 for additional details regarding these awards.
(4) These BPIP awards vest subject to the Company’s attainment of certain financial targets during the three-year performance period commencing with the year of grant. The number of units shown reflects the number of shares that the NEO would receive upon settlement of the award assuming actual performance through December 31, 2015 (113% of target) continued through the remainder of the three-year performance period. See “Potential Payments Upon Termination or Change in Control” below for additional details regarding these awards.
(5) Of these RSUs, 2,372 vested on January 31, 2016. The RSUs were awarded in connection with Mr. Shedlin’s commencement of employment with BlackRock and the resulting forfeiture of deferred compensation awards granted by his former employer. The vesting schedule of the RSUs mirrors the schedule on which the forfeited awards would have vested had Mr. Shedlin remained with his prior employer.
2015 Option Exercises and Stock Vested
The following table sets forth information concerning the number of shares acquired and the value realized by our NEOs during the fiscal year ended December 31, 2015 on the exercise of options or the settlement of RS and RSUs.
(1) Value realized reflects the closing price per share of BlackRock common stock on the day prior to the exercise or vesting date, as applicable.
Nonqualified Deferred Compensation
(1) Includes earnings on balances in the VDCP (as defined below).
Voluntary Deferred Compensation Plan
BlackRock maintains the Amended and Restated BlackRock, Inc. Voluntary Deferred Compensation Plan (“VDCP”), which allows participants to elect to defer between 1% and 100% of the cash element of their annual incentive compensation that is not mandatorily deferred under another arrangement. The participants must specify a deferral period of up to 10 years and distributions may be in up to 10 installments. The benchmark investments available for the NEOs are the same as those for all other participants. Deferred amounts and any benchmark returns are vested at the time of deferral or crediting, as applicable, under the VDCP.
Potential Payments Upon Termination or Change in Control
As described previously, the NEOs do not have individual employment, severance or change in control agreements with BlackRock. In addition, there are no change in control provisions associated with equity awards held by the NEOs that were outstanding as of December 31, 2015.
Pursuant to the terms of the applicable equity award agreements, an NEO experiencing certain terminations of employment may be entitled to accelerated vesting and payment (or continued eligibility for vesting and payment) with respect to such NEO’s outstanding awards. In addition, upon a termination of employment by the Company without cause, an NEO may be eligible to receive severance benefits under the Severance Plan. The applicable terms and estimated payment amounts with respect to the foregoing are set forth in the tables on pages 56 to 59, in each case assuming a termination of employment of the NEO on December 31, 2015.
Upon a change in control of BlackRock or a termination of an NEO’s employment for any reason, such NEO’s VDCP balance would be paid out. All outstanding VDCP balances were fully vested as of December 31, 2015. Accordingly, no amounts have been included in the table on page 58 below with respect to VDCP balances. For additional information, please refer to the “Nonqualified Deferred Compensation” tables on page 55.
Treatment of Outstanding Equity Awards Upon Termination of Employment
(1) This treatment also applies to the Buyout Award held by Mr. Shedlin (described in further detail in Footnote (5) to the “2015 Outstanding Equity Awards at Fiscal Year-End” table on pages 54 to 55).
(2) The Challenge Awards that were granted in January 2012 provide that, upon the NEO’s termination of employment by BlackRock other than for cause, any portion of the award that has not attained its stock price target will be forfeited. The January 2012 Challenge Awards had achieved all of their stock price targets as of December 31, 2015 and became fully vested on February 1, 2016.
Potential Payments Upon Termination of Employment
The amounts in the table below reflect an assumed termination of employment on December 31, 2015 and are based on the closing price of BlackRock common stock on December 31, 2015, which was $340.52 (except as noted in Footnote (1) below with respect to Mr. Hallac’s Year-End Awards). Any amounts payable upon or due to an NEO’s termination by BlackRock other than for cause, due to the NEO’s disability or upon a qualified retirement (as such terms are defined in the applicable award agreements) are subject to the NEO’s (i) execution of a release of claims against BlackRock and (ii) continued compliance with covenants restricting the NEO’s solicitation of clients or employees of BlackRock for the one-year period following termination.
(1) Except with respect to Mr. Hallac, this reflects an amount equal to (i) the number of unvested RSUs awarded as Year-End Awards (and the unvested portion of the Buyout Award granted to Mr. Shedlin) outstanding as of December 31, 2015, multiplied by (ii) $340.52 (the closing price of BlackRock common stock on December 31, 2015). For additional detail on the Year-End Awards, please refer to the “2015 Outstanding Equity Awards at Fiscal Year-End” table on page 54 and the “Treatment of Outstanding Equity Awards Upon Termination of Employment” table beginning on page 56. Mr. Hallac passed away on September 9, 2015. For Mr. Hallac, this amount reflects the amount realized upon vesting of these awards on such date.
(2) Reflects an amount equal to (i) the number of outstanding unvested RSUs awarded as Challenge Awards held by the NEO for which the applicable stock price targets had been attained as of December 31, 2015, multiplied by (ii) $340.52 (the closing price of BlackRock common stock on December 31, 2015). As of December 31, 2015, all of the stock price targets had been attained for the Challenge Awards granted in January 2012 and January 2013. Because none of the stock price targets applicable to the January 2014 Challenge Award grant had been attained as of December 31, 2015, the table above does not include any amounts attributable to these grants. As described in the “Treatment of Outstanding Equity Awards Upon Termination of Employment” table beginning on page 56, some or all of the Challenge Awards granted in January 2014 would remain outstanding and eligible to vest following certain terminations of employment. As described above, delivery of shares relating to the Challenge Awards for which the stock price targets have been attained will occur only if the minimum stock price target applicable to the award is also attained on the fourth, fifth or sixth anniversary of January 31 (or the next following business day) in which the grant date occurred. The January 2012 Challenge Awards fully vested on February 1, 2016 and have been settled. For additional detail on the Challenge Awards, please refer to the “2015 Outstanding Equity Awards at Fiscal Year-End” table on page 54 and the “Treatment of Outstanding Equity Awards Upon Termination of Employment” table beginning on page 56.
(3) Reflects an amount equal to (i) the number of shares that the NEO would receive upon settlement of the award, assuming that performance relative to the performance targets through December 31, 2015 continued through the remainder of the three-year performance period, multiplied by (ii) $340.52 (the closing price of BlackRock common stock on December 31, 2015). The actual number of shares that an NEO would receive following the end of the three-year performance period will be based on the Company’s actual performance over the duration of the performance period. For additional detail on the BPIP awards, please refer to the “2015 Grants of Plan-Based Awards” table on page 53, the “2015 Outstanding Equity Awards at Fiscal Year-End” table on page 54 and the “Treatment of Outstanding Equity Awards Upon Termination of Employment” table beginning on page 56.
(4) Reflects the amount that would have been payable to the NEO in a lump sum pursuant to the Severance Plan, assuming the NEO’s termination of employment by BlackRock other than for cause on December 31, 2015.
(5) As noted above, Mr. Hallac passed away on September 9, 2015. Accordingly, only amounts payable in the event of death have been included with respect to him.
(6) Values for Year-End Awards, Challenge Awards, BPIP Awards and Severance are rounded to the nearest whole number and, as a result of such rounding, the sum of such amounts may differ slightly from the amounts set forth in the line item titled “Total”.
Equity Compensation Plan Information
The following table summarizes information, as of December 31, 2015, relating to BlackRock equity compensation plans pursuant to which grants of options, RS, RSUs or other rights to acquire shares of BlackRock common stock may be granted from time to time.
(1) Includes 154,094 shares issuable under options and 4,701,782 shares in RS and RSUs. On December 31, 2015, 1,311,887 shares were available for contribution by PNC pursuant to the share surrender agreement with BlackRock and PNC to settle awards outstanding under this Plan and for future BlackRock stock grants under any other plan in accordance with the terms of the share surrender agreement. Since February 2009, these shares were held by PNC as Series C Preferred Stock. In February 2016, 548,227 shares were surrendered. On March 31, 2016, 763,660 remain available for contribution by PNC.
(2) Represents weighted average exercise price on options only.
Section 16(A) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, Section 16 officers and persons who own more than 10% of a registered class of BlackRock’s equity securities to file reports of holdings of, and transactions in, BlackRock shares with the SEC and the NYSE. To the best of BlackRock’s knowledge, based solely on copies of such reports and representations from these reporting persons, we believe that in 2015, our directors, Section 16 officers and 10% holders met all applicable SEC filing requirements with the exception of Ms. Wagner, who made one late filing concerning a gift.
Certain Relationships and Related Transactions
PNC and its Subsidiaries
As of March 31, 2016, PNC beneficially owned approximately 21.1% of BlackRock’s common stock outstanding.
William S. Demchak, Chairman, President and Chief Executive Officer of PNC, serves as a director of BlackRock. PNC has elected not to appoint a second director to the Board of Directors at this time, though it reserves the right to do so. In addition, PNC has been permitted to invite a non-voting observer to attend Board meetings. Gregory B. Jordan, General Counsel & Head of Regulatory and Governmental Affairs of PNC, is the PNC observer.
BlackRock provides investment advisory and administration services to certain PNC subsidiaries and separate accounts for a fee based on assets under management. The amount of investment advisory and administration fees earned from PNC and its affiliates in relation to these services in 2015 totaled $3.6 million.
BlackRock provides risk management advisory services to PNC’s corporate and line of business asset/liability management committees, for which it received an annual fee of $6.9 million for 2015. BlackRock also recorded revenue of $2.7 million related to non-discretionary trading services.
BlackRock paid $2.0 million to PNC affiliates in 2015 for service fees related to certain retail and institutional clients.
Transactions between BlackRock Funds and Client Accounts and PNC and its Subsidiaries
From time to time in the ordinary course of our business, acting predominantly as agent for its clients, BlackRock effects transactions in securities and other financial assets with PNC and its subsidiaries. The amount of compensation or other value received by PNC in connection with those transactions is dependent on the capacity in which it participates in each of them, as principal or agent for other principals, and the type of security or financial asset involved. PNC may also act as the underwriter of securities purchased by BlackRock-managed funds and accounts. We principally engage in fixed income transactions with PNC. PNC (including its subsidiaries) was among one of BlackRock’s many fixed income trading counterparties in 2015. Fixed income transactions are typically not traded on a commission basis and, accordingly, the amounts earned by PNC and its subsidiaries on such transactions cannot be determined.
PNC may, from time to time in the ordinary course of business, make loans to funds or separately managed accounts or commit to make future loans on substantially the same terms as those prevailing at the time for comparable loans to third parties and may enter into caps, hedges or swaps in connection with such loans. BlackRock may be an investor in or co-investor alongside these funds and accounts. BlackRock products and client accounts also enter into a variety of other arrangements with PNC and its subsidiaries on an arm’s length basis in the ordinary course of business. Such arrangements include, but are not limited to, serving as custodian or transfer agent or providing principal protection warranties as well as book value protection and co-administration, sub-administration, fund accounting, networking, leases of office space to PNC or its subsidiaries, bank account arrangements, derivative transactions, letters of credit, securities lending, loan servicing and other administrative services for BlackRock- managed funds and accounts. In certain instances, the fees that may be incurred by BlackRock funds or other products are capped at a fixed amount. In such cases, BlackRock may be responsible for payment of fees incurred in excess of such caps and such amounts would be reflected in the fees for administrative services described above. Additionally, PNC or its subsidiaries or affiliates may invest in BlackRock funds or other products or buy or sell assets to or from BlackRock funds and separate accounts.
Lease Obligation with PNC
In 2015, BlackRock was a lessee under one lease with PNC, which terminated on September 30, 2015. Prior to the termination of the lease, BlackRock paid approximately $18,700 for this property as a lessee in 2015.
Stockholder Agreement with PNC
BlackRock is a party to an implementation and stockholder agreement with PNC (the “PNC Stockholder Agreement”), which governs the ownership interests and relationship of PNC in and with BlackRock. BlackRock and PNC are also parties to a registration rights agreement.
The following paragraphs describe certain key provisions of the PNC Stockholder Agreement as amended and restated.
The PNC Stockholder Agreement provides for a limit on the percentage of BlackRock capital stock that may be owned by PNC at any time (which we refer to as the “PNC ownership cap”). Due to the PNC ownership cap, PNC is generally not permitted to acquire any additional capital stock of BlackRock if, after such acquisition, it would hold greater than 49.9% of the total voting power of the capital stock of BlackRock issued and outstanding at such time or 38% of the sum of the total voting securities and participating preferred stock of BlackRock issued and outstanding at such time and issuable upon the exercise of any options or other rights outstanding at that time.
In addition, PNC may not acquire any shares of BlackRock from any person other than BlackRock or a person that owns 20% or more of the total voting power of the capital stock of BlackRock (other than itself) if, after such acquisition, it would hold capital stock of BlackRock representing more than 90% of the PNC voting ownership cap.
At all times, PNC is prohibited from taking part in, soliciting, negotiating with, providing information to or making any statement or proposal to any person, or making any public announcement, with respect to:
- an acquisition which would result in PNC holding more than its ownership cap, or holding any equity securities of any controlled affiliate of BlackRock;
- any business combination or extraordinary transaction involving BlackRock or any controlled affiliate of BlackRock, including a merger, tender or exchange offer or sale of any substantial portion of the assets of BlackRock or any controlled affiliate of BlackRock;
- any restructuring, recapitalization or similar transaction with respect to BlackRock or any controlled affiliate of BlackRock;
- any purchase of the assets of BlackRock or any controlled affiliate of BlackRock, other than in the ordinary course of its business;
- being a member of a “group”, as defined in Section 13(d)(3) of the Exchange Act, for the purpose of acquiring, holding or disposing of any shares of capital stock of BlackRock or any controlled affiliate of BlackRock;
- selling any BlackRock capital stock in an unsolicited tender offer that is opposed by the BlackRock Board of Directors;
- any proposal to seek representation on the Board of Directors of BlackRock except as contemplated by the PNC Stockholder Agreement;
- any proposal to seek to control or influence the management, Board or policies of BlackRock or any controlled affiliate of BlackRock except as contemplated by the PNC Stockholder Agreement; or
- any action to encourage or act in concert with any third party to do any of the foregoing.
Additional Purchase of Voting Securities
The PNC Stockholder Agreement gives PNC the right, in any issuance of BlackRock voting stock, (1) to purchase an amount of such stock or, at PNC’s option, Series B Preferred Stock, upon such issuance that would result in PNC holding the lesser of (a) the PNC ownership cap or (b) an ownership percentage in BlackRock equal to what it held prior to the issuance, and (2) if as a result of such stock issuance PNC’s beneficial ownership of the total voting power of BlackRock capital stock decreases to less than 38%, to exchange such number of shares of Series B Preferred Stock for shares of common stock on a one-for-one basis such that following the stock issuance, PNC will beneficially own shares of voting securities representing not more than 38% of the total voting power of BlackRock capital stock, unless such issuance constitutes a public offering and would not, together with any stock issuance constituting a public offering since September 29, 2006, after taking into account any share repurchases by BlackRock since September 29, 2006 and transfers by PNC, decrease PNC’s total voting power to 90% or less of the PNC ownership cap.
If BlackRock engages in a share repurchase, BlackRock may require PNC to sell an amount of securities that will cause its beneficial ownership of BlackRock capital stock not to exceed its total ownership cap or voting ownership cap.
PNC may not transfer any capital stock of BlackRock beneficially owned by it, except for transfers to its respective affiliates and transfers in certain other specified categories of transactions that would result in the beneficial ownership, by any person, of more than 10% of the total voting power of issued and outstanding BlackRock capital stock with respect to transfers to persons who would be eligible to report their holdings of BlackRock capital stock on Schedule 13G or of more than 5% of the total voting power of issued and outstanding capital stock with respect to any other persons.
Right of Last Refusal
PNC must notify BlackRock if it proposes to sell shares of BlackRock capital stock in a privately negotiated transaction. Upon receipt of such notice, BlackRock will have the right to purchase all of the stock being offered, at the price and terms described in the notice. These notification requirements and purchase rights do not apply in the case of tax-free transfers to charitable organizations or foundations and tax-deferred transfers.
The PNC Stockholder Agreement provides that BlackRock will use its best efforts to cause the election at each annual meeting of stockholders such that the Board of Directors will consist of no more than 19 directors:
- not less than two nor more than four directors who will be members of BlackRock management;
- two directors who will be designated by PNC, provided, however, that if for any period greater than 90 consecutive days PNC and its affiliates shall beneficially own less than 10% of the BlackRock capital stock issued and outstanding, PNC shall promptly cause one of such PNC designees to resign and the number of PNC designees permissible shall be reduced to one; and provided further, that, if for any period greater than 90 consecutive days PNC and its affiliates shall beneficially own less than 5% of the BlackRock capital stock issued and outstanding, PNC shall promptly cause a second PNC designee to resign and the number of PNC designees permissible shall be reduced to zero; and
- the remaining directors who will be independent for purposes of the rules of the NYSE and will not be designated by or on behalf of PNC or any of its affiliates.
Of the current directors, William S. Demchak was designated by PNC. PNC has elected not to appoint a second director to the Board of Directors at this time, though it reserves the right to do so. In addition, PNC has been permitted to invite a non-voting observer to attend Board meetings. Gregory B. Jordan, General Counsel & Head of Regulatory and Governmental Affairs of PNC, is the PNC observer.
PNC has agreed to vote all of its voting shares in accordance with the recommendation of the Board of Directors on all matters to the extent consistent with the provisions of the PNC Stockholder Agreement, including the election of directors.
Under the PNC Stockholder Agreement, the following may not be done without prior approval of all of the independent directors, or at least two-thirds of the directors, then in office:
- appointment of a new Chief Executive Officer of BlackRock;
- any merger, issuance of shares or similar transaction in which beneficial ownership of a majority of the total voting power of BlackRock capital stock would be held by persons different from those currently holding such majority of the total voting power, or any sale of all or substantially all assets of BlackRock;
- any acquisition of any person or business that has a consolidated net income after taxes for its preceding fiscal year that equals or exceeds 20% of BlackRock’s consolidated net income after taxes for its preceding fiscal year if such acquisition involves the current or potential issuance of BlackRock capital stock constituting more than 10% of the total voting power of BlackRock capital stock issued and outstanding immediately after completion of such acquisition;
- any acquisition of any person or business constituting a line of business that is materially different from the lines of business BlackRock and its controlled affiliates are engaged in at that time if such acquisition involves consideration in excess of 10% of the total assets of BlackRock on a consolidated basis;
- except for repurchases otherwise permitted under their respective stockholder agreements, any repurchase by BlackRock or any subsidiary of shares of BlackRock capital stock such that, after giving effect to such repurchase, BlackRock and its subsidiaries shall have repurchased more than 10% of the total voting power of BlackRock capital stock within the 12-month period ending on the date of such repurchase;
- any amendment to BlackRock’s certificate of incorporation or Amended and Restated Bylaws;
- any matter requiring stockholder approval pursuant to the rules of the NYSE; or
- any amendment, modification or waiver of any restriction or prohibition on any significant stockholder (other than PNC or its affiliates) provided for under its stockholder agreement.
Consistent with applicable laws, rules and regulations, the Audit Committee, the MDCC and the Governance Committee are to be composed solely of independent directors. The Risk Committee and Executive Committee are not subject to any similar laws, rules or regulations, and as such, are composed of a mix of independent and non- independent directors. The PNC Stockholder Agreement provides that the Executive Committee will consist of not less than five members, of which one must be designated by PNC.
Significant Stockholder Transactions
The PNC Stockholder Agreement prohibits BlackRock or its affiliates from entering into any transaction with PNC or its affiliates, unless such transaction was in effect as of September 29, 2006, is in the ordinary course of business of BlackRock or has been approved by a majority of the directors of BlackRock, excluding those appointed by the party wishing to enter into the transaction.
The PNC Stockholder Agreement will terminate on the first day on which PNC and its affiliates own less than 5% of the capital stock of BlackRock, unless PNC sends a notice indicating its intent to increase its beneficial ownership above such threshold within 10 business days after it has fallen below such threshold, and PNC buys sufficient capital stock of BlackRock within 20 business days after PNC has notice that it has fallen below 5% of BlackRock capital stock such that it continues to own greater than 5% of BlackRock capital stock.
Transactions with Directors, Executive Officers and Other Related Parties
From time to time, certain directors, their family members and related charitable foundations may have investments in various BlackRock investment vehicles or accounts. For certain types of products and services offered by BlackRock’s subsidiaries, BlackRock directors may receive discounts that are available to our employees generally. In addition, certain of the companies or affiliates of the companies that employ BlackRock’s independent directors may have investments in various BlackRock investment vehicles or accounts. These investments are entered into in the ordinary course of business on substantially the same terms as those prevailing at the time for comparable transactions with similarly situated customers and eligible employees.
Policy Regarding the Review, Approval or Ratification of Transactions with Related Persons
On February 27, 2007, the Board of Directors adopted a written policy regarding related person transactions, which governs and establishes procedures for the approval and ratification of related person transactions. The policy defines a related person transaction as any transaction or arrangement in which the amount involved exceeds $120,000, where BlackRock or any of its subsidiaries is a participant and a related person has a direct or indirect material interest. For purposes of the policy, a “related person” is any person who is, or was during the last fiscal year, a BlackRock director or executive officer, or a director nominee, or any person who is a beneficial owner of more than 5% of any class of BlackRock’s voting securities, or any immediate family member of any of the foregoing persons.
The policy provides that related person transactions must be approved by a majority of the uninterested members of the Governance Committee or the Board of Directors. In the event it is not practicable for BlackRock to wait for approval until the next meeting of the Governance Committee or the Board of Directors, the Chairperson of the Governance Committee may approve the transaction.
In reviewing any related person transaction, all of the relevant facts and circumstances must be considered, including (i) the related person’s relationship to BlackRock and his or her interest in the transaction, (ii) the benefits to BlackRock, (iii) the impact on a director’s independence in the event the related person is a director, an immediate family member of a director or an entity in which a director is a partner, stockholder or executive officer, (iv) the availability of comparable products or services that would avoid the need for a related person transaction and (v) the terms of the transaction and the terms available to unrelated third parties or to employees generally.
The policy provides that transactions (other than transactions in the ordinary course of business) with PNC are governed by the special approval procedures set forth in the PNC Stockholder Agreement. Those approval procedures prohibit BlackRock or its affiliates from entering into any transaction (other than any transaction in the ordinary course of business) with PNC or its affiliates unless such transaction was in effect as of September 29, 2006 or has been approved by a majority of the directors of BlackRock, excluding those designated for appointment by the party wishing to enter into the transaction. Of the current directors, William S. Demchak was designated by PNC.
Prior to the adoption of this policy, related person transactions, including certain of the transactions described above under “—PNC and its Subsidiaries” and “—Stockholder Agreement with PNC”, were reviewed with the Board of Directors at the time of entering into such transactions.
Item 2: Non-Binding Advisory Vote on Executive Compensation for Named Executive Officers
We are holding a non-binding advisory vote for stockholders to approve the compensation of our NEOs as disclosed in this Proxy Statement pursuant to Item 402 of Regulation S-K.
While this vote is advisory, and not binding on our Company, it will provide information to our Board of Directors and the MDCC regarding investor sentiment about our executive compensation philosophy, policies and practices. Our Board and the MDCC value the opinions of our stockholders and, to the extent there is any significant vote against the compensation of NEOs as disclosed in this Proxy Statement, we will consider our stockholders’ concerns and the MDCC will evaluate whether any actions are necessary to address those concerns.
In considering their vote, stockholders may wish to review with care the information on BlackRock’s compensation policies and decisions regarding the NEOs presented in “Compensation of Executive Officers” on pages 33 to 50, as well as the discussion regarding the MDCC on page 22.
Our compensation philosophy is structured to align management’s interests with our stockholders’ interests. A significant portion of total compensation for executives is closely linked to BlackRock’s financial and operational performance as well as BlackRock’s common stock price performance. BlackRock has adopted strong governance practices for its employment and compensation programs. Compensation programs are reviewed annually to ensure that they do not promote excessive risk taking.