Bank of New York Mellon Corporation (BK)

 

In February 2007, the Mellon committee established the base salary and the long-term equity components of Messrs. Elliott’s and O’Hanley’s compensation for 2007. The committee determined that the annual base salaries for Messrs. Elliott and O’Hanley would remain at $675,000. In addition, the committee approved equity awards for Messrs. Elliott and O’Hanley each with values of $2,500,000 and $5,750,000, respectively, in the form of a combination of stock options (which were $1,750,000 and $4,025,000, respectively) and restricted stock (which were $750,000 and $1,725,000, respectively).

 

In determining Mr. Elliott’s equity award, the committee valued the stock option portion using the lattice binomial method and the restricted stock portion using a fair market value method in awarding a total equity award value to Mr. Elliott of $2,500,000. In determining Mr. O’Hanley’s equity award, the Mellon committee valued the stock option portion using the Black-Scholes method and the restricted stock portion using a fair market value method in awarding a total equity award value to Mr. O’Hanley of $5,750,000. The committee elected to use the Black-Scholes method to value the stock option portion of Mr. O’Hanley’s award, rather than the lattice binominal method used to value the options granted to Messrs. Kelly and Elliott, because the Black-Scholes method was used to develop the comparative compensation data from the peer group relevant to Mr. O’Hanley which was presented to and considered by the committee. The total value of the award, as well as the respective values of the stock option award and the restricted stock award, were above the median value of comparable awards made by the relevant peer group. As described above, these valuation methods differ from the accounting expense reported for these awards in the “Summary Compensation Table” and the “Grants of Plan-Based Awards Table” below.

 

When the Mellon committee established Mr. Elliott’s base salary and long-term equity awards, it reviewed the amounts and types of compensation paid to comparable executives included in the peer group. The committee also reviewed Mellon’s performance in 2006 (which is discussed in the “Pre-Merger Mellon Committee Actions Relating to Mr. Kelly” above) and Mr. Elliott’s role and responsibility in contributing to those results.

 

When the Mellon committee established Mr. O’Hanley’s base salary and long-term equity awards, it reviewed the amounts and types of compensation paid to comparable executives included in his relevant peer group. The committee also reviewed the performance of Mellon Asset Management in 2006, and Mr. O’Hanley’s role and responsibility in achieving these results. In particular, the committee considered the following factors in making its determination, including total revenue increase of 33% and performance fees increase of 109% (both versus full year 2005), pre-tax income increase of 59% (operating basis), pre-tax margin improvement to 31% from 27%, and achievement of a record level of assets under management of $820 billion, a 31% increase and 10% organic growth in assets under management (12 months ending December 31, 2006), which was the highest among leading U.S. asset managers. This performance was described in further detail in SEC filings by Mellon prior to the merger.

 

Finally, the committee granted additional special equity awards to Messrs. Elliott and O’Hanley valued at $1,753,000 and $831,600, respectively. These awards were composed of stock options and restricted stock and