We are asking our shareholders to approve the compensation of our NEOs as disclosed in this Proxy Statement.
While this vote is advisory, and not binding on the Company, it will provide information to us regarding investor sentiment about our executive compensation philosophy, policies and practices. We value the opinions of our shareholders and, to the extent there is any significant vote against the compensation of our NEOs as disclosed in this Proxy Statement, we will consider our shareholders’ concerns and the Compensation Committee will evaluate whether any actions are necessary to address those concerns.
Before You Vote
In considering your vote, we encourage shareholders to review the information on BlackRock’s compensation policies and decisions regarding our NEOs presented in the summary of our executive compensation practices on page 74, as well as our “Compensation Discussion and Analysis” beginning on page 53.
Our pay-for-performance compensation philosophy is structured to align management’s interests with our shareholders’ 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.
Management Development & Compensation Committee Report
Management Development & Compensation Committee Report on Executive Compensation for Fiscal Year 2018
The Compensation Committee 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 that the Compensation Discussion and Analysis be included in this Proxy Statement.
MEMBERS OF THE MANAGEMENT DEVELOPMENT & COMPENSATION COMMITTEE
Ivan G. Seidenberg,
Jessica P. Einhorn
William E. Ford
Margaret L. Johnson
Cheryl D. Mills
Gordon M. Nixon
Marco Antonio Slim Domit
Our Board recognizes the importance of executive compensation decisions to our shareholders. The annual say-on-pay advisory vote provides our shareholders with the opportunity to:
At the 2018 Annual Meeting of Shareholders, the say-on-pay advisory vote received majority
support, with 89% of the votes cast in favor of our executive compensation policies, practices and determinations. Our Board encourages an open and constructive dialogue with shareholders on compensation to ensure alignment on policies and
As in prior years, we engaged shareholders in advance of this year’s annual meeting to incorporate their views as we continue to enhance our compensation programs.
BlackRock is committed to delivering long-term shareholder value. While our financial results can be affected by global capital market conditions that are beyond our control, management has the ability to influence key drivers of shareholder value.
BlackRock’s 2018 results reflect the investments we have made over time to leverage our scale and optimize our strategic positioning. We generated $124 billion of net inflows for the full year, representing 2% organic growth, delivered revenue growth, expanded our operating margin and returned $3.6 billion to shareholders, despite meaningful headwinds in the asset management industry. Long-term investment performance results across our alpha-seeking and index strategies as of December 31, 2018 remain strong and are detailed in Part I, Item 1 — Business of our 2018 Form 10-K.
Our compensation program for NEOs includes base salary, annual incentive awards (cash and deferred equity), and long-term performance-based incentive awards.
Pay and Performance Alignment for NEOs – Total Incentive Award Determination
In 2018, the Compensation Committee extended our total compensation
framework, that in previous years applied only to our CEO and President, to cover all NEOs. Under this program, the Compensation Committee assesses each NEO’s performance individually, based on the three categories below. Each category is
assigned a weighting factor, with 50% of the award opportunity dependent on BlackRock’s financial performance, 30% dependent on BlackRock’s business strengths, and 20% dependent on BlackRock’s organizational strengths.
At the beginning of the year, the Compensation Committee and management engaged in a rigorous review and approval of objectives for the CEO, President, and other NEOs. The objectives deliver on BlackRock’s shareholder value framework and commitment to serving client needs holistically and through market cycles. Throughout the year, the Compensation Committee received updates on the performance against these goals and objectives. At the end of the year, the Compensation Committee assesses each NEO’s performance against the objectives, while considering internal performance measures and peer group comparisons.
The Compensation Committee’s performance assessment is directly related to each NEO’s total incentive outcome, which includes all variable pay (annual discretionary cash award, annual discretionary deferred equity award, and long-term equity awards). Based on the Compensation Committee’s performance assessment, total incentive awards can range from 0% to 125% of the prior year’s total incentive pay.
Once the total incentive award is determined, the Compensation Committee determines the appropriate mix between cash, deferred equity, and long-term equity. For all NEOs, at least half of their total incentive award is delivered through equity. Additionally, for Messrs. Fink and Kapito, at least half of their equity awards are delivered through the BPIP Awards, which are contingent on future financial or other business performance requirements in addition to share price performance.
Each NEO, through their various roles and responsibilities, contributes to the firm-wide objectives summarized below. For the NEO performance assessments, please refer to the section “2018 NEO Compensation and Performance Summaries” on page 66.
The amounts listed above as “2018 Annual Incentive Award: Deferred Equity” and “Long-Term Incentive Award (BPIP)” were granted in January 2019 in the form of equity and are separate from the cash award amounts listed above as “2018 Annual Incentive Award: Cash.” In conformance with SEC requirements, the 2018 Summary Compensation Table on page 77 reports equity in the year granted, but cash in the year earned.
Our total annual compensation structure embodies our commitment to align pay with performance. More than 90% of our regular annual executive compensation is performance based and “at risk.” Compensation mix percentages shown below are based on 2018 year-end compensation decisions for individual NEOs by the Compensation Committee.
2. Our Compensation Program
BlackRock believes in aligning the interests of our senior-level employees, including our NEOs, with those of our shareholders and in closely aligning compensation with
In January 2015, the Compensation Committee approved BPIP Awards, following a comprehensive review of future performance goals and expectations, potential pay outcomes for employees, shareholder input, and market trends. BPIP was designed to further align compensation with management’s long-term creation of shareholder value.
Each NEO was granted a BPIP Award in January 2016, 2017 and 2018 as part of the individual’s incentive compensation for their 2015, 2016 and 2017 performance, respectively. Similarly, a portion of each NEO’s incentive compensation for 2018 was in the form of a BPIP Award granted in January 2019. 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 2019 BPIP grants (for 2018 performance) are described in further detail below. BlackRock is focused on achieving the right balance of investing to drive future 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 levels of Organic Revenue and operating margin, as adjusted, over a three-year performance period.
Similar to previous BPIP Awards, the January 2019 BPIP Awards have a three-year performance period that commenced on January 1, 2019 and end on December 31, 2021. Each BPIP Award consists of a “base” number of RSUs granted to the recipient. Distributions will be in the form of common stock.
BPIP Award Determination
For the January 2019 BPIP Awards, 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 January 2019 BPIP 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 for the January 2019 BPIP Awards is set forth below.
2018 BPIP Award Determination Matrix
If target level performance is achieved (i.e., during the three-year performance period, BlackRock has average annual Organic Revenue
equal to $450 million and average annual Operating Margin, as adjusted, equal to 43.0%), then a participant will receive a number of shares equal to 100% of the base number of units granted to the participant.
If during the three-year performance period, BlackRock has zero or negative average Organic Revenue and average Operating Margin, as adjusted, of 37.0% or less, then the participant will not be entitled to a distribution of any shares under his or her 2019 BPIP Award.
If during the three-year performance period, BlackRock were to deliver average Organic Revenue of $550 million and average Operating Margin, as adjusted, of 43.0%, then a participant receiving a BPIP Award valued at $2 million in January 2019 would receive a distribution of 5,264 shares, or 108% of the base number of RSUs granted. Outlined below is an example of how this above-target level achievement would be calculated.
January 2019 BPIP Grant: Example
If maximum level performance is achieved, then a participant will receive the maximum number of shares (meaning that during the performance period, BlackRock delivered average Organic Revenue equal to or greater than $850 million and average Operating Margin, as adjusted, equal to or greater than 49.0%). The maximum number of shares a participant may receive under BPIP is equal to 165% of the base number of units.
BlackRock has a robust leadership plan that is reviewed regularly by the Compensation Committee and the full Board, including ongoing succession planning and development initiatives for the senior leadership team. In the fourth quarter of 2017, BlackRock implemented a key strategic part of our long-term management succession plans by granting long-term incentive awards in the form of performance-based stock options to a select group of senior leaders, excluding the CEO and President, who we believe will play critical roles in BlackRock’s future. We did not grant performance-based stock options to any of our NEOs in 2018 and we do not consider these awards to be part of our regular annual compensation determinations.
3. Compensation Determination Process
The Compensation Committee structures the timing and process for determining individual NEO compensation so that compensation is appropriately aligned with the financial performance of BlackRock. This also ensures recognition of individual NEO leadership and operating contributions toward achieving our overall strategic priorities.
Management engages McLagan Partners (“McLagan”), a compensation consultant that specializes in conducting proprietary compensation surveys and interpreting
compensation trends. Management used McLagan surveys to evaluate BlackRock’s competitive position overall, as well as by functional business and by title and make comparisons on an individual NEO basis, where survey data was available and
Survey results were analyzed to account for differences in the scale and scope between BlackRock and other survey participants.
Survey participants include both stand-alone, publicly traded asset management companies as well as a broader set of privately held or subsidiary asset management organizations for which publicly available compensation data is not available. Confidentiality obligations to McLagan and to its survey participants prevent BlackRock from disclosing the companies included in the surveys.
The Compensation Committee 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.
In 2018, the Compensation Committee continued to engage Semler Brossy for objective advice on compensation practices and the competitive landscape for the compensation of
BlackRock’s executive officers.
Semler Brossy reports directly to the Compensation Committee and interacts with BlackRock management when necessary and appropriate. Semler Brossy provides services only to the Compensation Committee 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 Compensation Committee concluded that no conflict of interest exists that would prevent Semler Brossy from independently advising the Compensation Committee.
A representative from Semler Brossy met with the Compensation Committee in formal Committee meetings and at key points throughout the year to provide objective advice to the Compensation Committee on existing and emerging compensation practices among financial services companies, as well as companies in the asset management sector. The representative from Semler Brossy also meets with the Compensation Committee in executive sessions throughout the year to discuss compensation practices and industry pay trends.
The Compensation Committee, with assistance from Semler Brossy, reviews the composition of our peer group to ensure the group continues to serve as an appropriate market reference for executive compensation purposes. In considering the composition of our peer group, the Compensation Committee considers companies that are in our industry or have similar lines of business, are competitors for our executive talent, are large, complex organizations with global reach and/or are similarly sized from a revenue and market cap perspective. Our peer group reflects our current scale, business and strategic priorities.
2018 PEER GROUP
Affiliated Managers Group
As previously noted, the McLagan analyses, which include both publicly traded companies as well as private companies in a variety of industries and sectors, offer 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. BlackRock does not engage in formal benchmarking in setting executive compensation levels.
compensation program is structured to discourage excessive and unnecessary risk taking. The Board recognizes that potential risks to BlackRock may be inherent in compensation programs. The Board reviews BlackRock’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, we believe that the compensation plans are appropriately structured and do not pose risks that could have
a materially adverse effect on BlackRock.
The Compensation Committee considers the following when evaluating whether employee compensation plans and policies encourage BlackRock employees to take unreasonable risks:
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 our 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 BlackRock client. As
such, employees are not rewarded for engaging in high-risk transactions outside of established parameters.
Our compensation practices reinforce the fundamentals of BlackRock’s business model in that they:
The Company’s operating income, as adjusted, on which compensation is primarily based, does not include net investment income or gains/losses on BlackRock’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.
4. 2018 NEO Compensation and Performance Summaries
Here we provide the 2018 NEO performance assessments and total incentive award decisions
As outlined in “Our Compensation Framework” on page 56, the Compensation Committee extended the total compensation framework, that in previous years applied to only our CEO and President, to include all NEOs for 2018. Under this revised framework, each NEO is assessed against financial performance objectives (50%), business strength objectives (30%) and organizational strength objectives (20%). The performance assessments have a direct link to the total incentive outcome (annual discretionary cash award, annual discretionary deferred equity award, and long-term equity awards) for each NEO.
Overall Assessment: Partially Meets
In 2018, BlackRock expanded operating margin, executed on key strategic initiatives, made significant progress towards inclusion and diversity
objectives, and outperformed our Traditional LC Peers,(2) in light of a difficult market environment. Nonetheless, due to BlackRock’s financial performance relative to expectations and
in alpha-generating products, the Compensation Committee’s assessment resulted in a Partially Meets determination. Based on the performance assessment, the Compensation Committee set Mr. Fink’s 2018 total compensation at $24 million, down 14% from 2017.
Overall Assessment: Partially Meets
Mr. Kapito’s assessment reflects the same positive overall firm performance as Mr. Fink’s with the additional emphasis on operational processes across the firm, as well as investment performance and diversity objectives. Nonetheless, due to BlackRock’s financial performance relative to expectations and underperformance in alpha-generating products, the Compensation Committee’s assessment resulted in a Partially Meets determination. Based on the performance assessment, the Compensation Committee set Mr. Kapito’s 2018 total compensation at $19 million, down 14% from 2017.
Overall Assessment: Meets/Exceeds
Mr. Goldstein played a critical role in driving BlackRock’s financial results in 2018. As COO, he contributed to the expansion of BlackRock’s operating margin by 20 basis points, and as Head of BlackRock Solutions, drove record technology services revenue. The Compensation Committee’s assessment resulted in a Meets/Exceeds determination, and based on the performance assessment, the Compensation Committee set Mr. Goldstein’s total compensation at $7.85 million, down 4% from 2017.
Overall Assessment: Meets/Exceeds
Mr. Kushel played a critical role in driving BlackRock’s financial results in 2018. Mr. Kushel assumed leadership of the GFI business, in addition to his responsibilities as Global Head of MAS. He improved net new business in each of the businesses he led, and in partnership with Mr. Kapito, created the BlackRock Client Portfolio Solutions group. The Compensation Committee’s assessment resulted in a Meets/Exceeds determination, and based on the performance assessment, the Compensation Committee set Mr. Kushel’s total compensation at $6.68 million, down 5% from 2017.
Overall Assessment: Meets/Exceeds
Mr. Shedlin played a critical role in driving BlackRock’s financial results in 2018. As CFO, he contributed to the expansion of BlackRock’s operating margin by 20 basis points and executed several targeted transactions to drive future growth. The Compensation Committee’s assessment resulted in a Meets/Exceeds determination, and based on the performance assessment, the Compensation Committee set Mr. Shedlin’s total compensation at $6.45 million, down 5% from 2017.
Our stock ownership guidelines require the Company’s GEC members to own a target number of shares (i.e., shares owned outright, not including unvested shares or unexercised stock options), the dollar amount of which is set out below. Until these stock ownership guidelines are met, GEC members must retain 50% of the net (after-tax) shares delivered from BlackRock equity awards. The Compensation Committee monitors the progress made by our GEC in achieving their stock ownership guidelines and, if circumstances warrant, may modify the guidelines and/or time frames for one or more members of our GEC.
As of December 31, 2018, all of our NEOs exceeded the stock ownership guidelines.
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 may participate. Our NEOs also have the option to participate in a comprehensive health exam offered to our executives. BlackRock makes contributions to
401(k) accounts of our 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 our NEOs’ annual incentive awards pursuant to the Amended and Restated BlackRock, Inc. Voluntary Deferred Compensation Plan (the “VDCP”).
Our 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 a lump sum cash payment equal to two weeks of salary 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 our NEOs, such as financial planning, investment opportunities and personal use of travel services are considered a reasonable part of the executive compensation program. A financial planning perquisite is offered to our 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. Our 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 our NEOs for business and personal use. The compensation attributed to each of our NEOs for 2018 for perquisites is described in footnote (4) to the “2018 Summary Compensation Table” on page 77.
BlackRock did not provide tax reimbursements for any perquisites or other compensation paid to our NEOs.
Tax Deductibility of Compensation
Section 162(m) of the Internal Revenue Code generally limits the tax deductibility of compensation paid to any executive officers subject to Section 162(m) (the
“Covered Employees”) to $1 million during any fiscal year unless such compensation qualifies as “performance-based” (although this exception was severely limited beginning in 2018, as described below). Historically, the
Company administered its incentive compensation arrangements in a manner that would comply with these tax rules. However, the Compensation Committee maintained the flexibility to pay non-deductible incentive
compensation if it determines it is in the best interest of the Company and its shareholders.
The Tax Cuts and Jobs Act, enacted on December 22, 2017, substantially modified Section 162(m) and, among other things, eliminated the performance-based exception to the $1 million deduction limit effective as of January 1, 2018. As a result, beginning in 2018, compensation paid to Covered Employees in excess of $1 million is generally nondeductible, whether or not it is performance-based. In addition, beginning in 2018, the Covered Employees include any individual who served as the CEO or CFO at any time during the taxable year and the three other most highly compensated officers (other than the CEO and CFO) for the taxable year. Once an individual becomes a Covered Employee for any taxable year beginning after December 31, 2016, that individual will remain a Covered Employee for all future years, including following any termination of employment.
The Tax Cuts and Jobs Act includes a transition relief rule under which the changes to Section 162(m) described above will not apply to compensation payable pursuant to a written binding contract that was in effect on November 2, 2017 and is not materially modified after that date. To the extent applicable to our existing contracts and awards, the Company may avail itself of this transition relief rule. To maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals in the best interest of the Company and its shareholders, the Compensation Committee does not limit its actions with respect to executive compensation to preserve deductibility under Section 162(m) if the Compensation Committee determines that doing so is in the best interests of the Company and its shareholders.
Executive Compensation Tables
The following 2018 Summary Compensation Table contains information concerning compensation provided by BlackRock for the years indicated to the NEOs. Pursuant to SEC rules, the compensation table below includes only those equity-based awards granted in a particular year and not any awards granted after year-end, even if awarded for services in that year. It additionally discloses any cash compensation earned in a particular year, even if such payments are made after year-end.
2018 Summary Compensation Table
2018 Grants of Plan-Based Awards
The following table sets forth information concerning equity incentive plan-based compensation provided by BlackRock in 2018 to our NEOs.
2018 Outstanding Equity Awards at Fiscal Year-End
2018 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, 2018 on the exercise of options or the vesting and/or settlement of RS and RSUs.
2018 Nonqualified Deferred Compensation
Voluntary Deferred Compensation Plan
BlackRock maintains the 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.
Pursuant to the terms of the applicable equity award agreements, an NEO whose employment is terminated 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 81 and 82, in each case assuming a termination of employment of the NEO on December 31, 2018.
Upon a change in control of BlackRock or a termination (with respect to deferrals prior to the 2016 plan year) of an NEO’s employment for any reason, such NEO’s VDCP balance would be paid out. Upon a termination of an NEO’s employment for any reason with respect to deferrals for the 2016 plan year and beyond, such NEO’s VDCP balance would be paid in accordance with their deferral election. All outstanding VDCP balances were fully vested as of December 31, 2018. Accordingly, no amounts have been included in the table on page 82 with respect to VDCP balances. For additional information, please refer to the “2018 Nonqualified Deferred Compensation” table above.
Treatment of Outstanding Equity Awards Upon Termination of Employment or a Change in Control
Potential Payments Upon Termination of Employment or a Change in Control
The amounts in the table below reflect an assumed termination of employment on December 31, 2018 and are based on the closing price of BlackRock common stock on December 31, 2018, which was $392.82. 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.
CEO Pay Ratio for 2018
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation our CEO:
For 2018, our last completed fiscal year:
Based on this information, the ratio of our CEO’s annual total compensation to the median of the annual total compensation of all employees was 195:1. This result is broadly consistent with our historical pay practices.
2018 CEO Pay Ratio = 195:1
To identify the median of the annual total compensation of all our employees, as well as to determine the annual total compensation of our median employee and our CEO, we took the following steps:
Equity Compensation Plan Information
The following table summarizes information, as of December 31, 2018, relating to BlackRock equity compensation plans pursuant to which grants of options, restricted stock, restricted stock units or other rights to acquire shares of BlackRock common stock may be granted from time to time.