STI » Topics » 2. Short-Term (Annual) Incentives

This excerpt taken from the STI DEF 14A filed Mar 6, 2009.

2. Short-Term (Annual) Incentives

The Management Incentive Plan (MIP) is our short-term cash incentive program which rewards the achievement of annual performance goals, primarily financial goals. We designed the MIP to:

 

   

Support our strategic business objectives.

 

   

Promote the attainment of specific financial goals.

 

   

Reward achievement of specific performance objectives.

 

   

Encourage teamwork.

All NEOs participate in MIP. The amount paid to an executive under MIP is a function of:

 

   

The executive’s target as determined through our competitive market review of his or her role. We express this as a percentage of base salary.

 

   

The level of achievement of MIP goals which were established by the Committee for the executive.

 

   

The payout amounts established by the Committee which correspond to minimum, target, and maximum levels of performance.

We target our annual incentive at the median of peer practice. The size of the annual incentive indirectly affects the size of nonqualified pension benefits and the potential payment under our change in control agreements, discussed below.

In February of each year, the Committee establishes target performance measures based largely on management’s confidential business plan and corresponding budget for that year, which would include revenue growth, cost reductions, and profit improvement. The MIP has 2 performance measures: net income available to

 

23


Table of Contents

common shareholders (75% weighting) and return on equity (25% weighting). The Committee also sets minimum and maximum performance levels for each performance measure. Maximum award targets reflect very ambitious goals which can only be attained when business results are exceptional and which have never been met, thus justifying the higher award payments.

We use only corporate, rather than individual, performance measures for the NEOs because the NEOs hold positions that have a substantial impact on the achievement of those measures. This approach also suggests that the collective individual performance will result in improved business performance and a favorable impact on shareholder value.

Actual payouts under MIP depend on the level at which we achieve the performance measures.

 

Our Performance

  

Payout

less than 90% of target performance   

no payout

at 90% of target performance   

50% of target payout (minimum payout)

at 100% of target performance   

100% of target payout (target payout)

at 110% of target performance   

200% of target payout (maximum payout)

We use straight-line interpolation to calculate payout values between minimum, target, and maximum levels. This means that we determine actual payouts by formula and that payouts are directly proportional to actual performance. Each 1% of actual performance below target but above the minimum affects the payout by 5%, and each 1% of actual performance above target but below the maximum affects the payout by 10%. For example, if actual performance were determined to be 97% or 3% below target, then the payout would be 85% of target. Similarly, if actual performance were determined to be 103%, or 3% above target, then the payout would be 130% of target. For 2008, the Committee set minimum, target and maximum goals for net income available to common shareholders (in millions) of $1,636.8, $1,818.6, and $2,000.5 and return on equity of 9.50%, 10.56% and $11.61%. At the beginning of the year, the Committee adopted a policy to exclude from net income for 2008 any gains or losses required to be recognized for accounting purposes related to market adjustments to (i) certain assets acquired from our sponsored money market funds, (ii) certain assets acquired from our commercial paper conduit, and (iii) market price adjustments for our own publicly traded debt securities.

The Committee reviews actual performance relative to pre-set goals and, in doing so, determines the amount of any final award payment. In determining final awards, the Committee considers adjusting GAAP net income available to common shareholders and return on equity for unplanned, unusual or non-recurring items of income or expense. In addition, the Committee has the discretion to increase or decrease such amount to be paid to the CEO, and the CEO can recommend to the Committee an increase or decrease in the amount to be paid to the other NEOs.

Like every other financial institution, in 2008 we operated in a time of unprecedented volatility in the financial services industry and for global financial markets, coupled with a deteriorating economy and uncertain outlook. Mark-to-market valuation losses and credit pressures caused by volatility in the mortgage and capital markets impacted earnings significantly. There was a severe impact on all forecasting assumptions made when the performance measures for MIP were established. Therefore, for the 2008 MIP, both net income available to common shareholders and return on equity fell below the minimum, which would have resulted by formula in a zero MIP payment. However, the Committee recognized that with these tremendous, adverse industry financial conditions, it was important to balance pay for performance with the retention of key talent. As a result, MIP payments were made to certain officers. We made no MIP payments to the NEOs and other direct reports of the CEO.

Effect of EESA and ARRA. ARRA directs the Treasury to adopt rules to implement “compensation standards” for CPP participants including a prohibition on bonuses and incentives other than certain restricted

 

24


Table of Contents

stock. As a result, it is likely that these new legislative and regulatory restrictions will preclude any payment of MIP or other short-term incentives to the NEOs in the future until EESA no longer applies to us.

This excerpt taken from the STI DEF 14A filed Feb 29, 2008.

2. Short-Term (Annual) Incentives

The Management Incentive Plan (MIP) is our short-term cash incentive which rewards the achievement of annual performance goals, primarily financial goals. We designed the MIP to:

 

   

Support our strategic business objectives.

 

   

Promote the attainment of specific financial goals.

 

   

Reward achievement of specific performance objectives.

 

   

Encourage teamwork.

All NEOs participate in MIP. The amount paid to an executive under MIP is a function of:

 

   

The executive’s target (percentage of base salary) as determined through our competitive market review of their role.

 

   

The level of achievement of MIP goals which were established by the Committee for the executive.

 

   

The payout amounts established by the Committee which correspond to minimum, target, and maximum levels of performance.

We target our annual incentive at the median of peer practice. The size of the annual incentive indirectly affects the size of nonqualified pension benefits and the potential payment under our change in control agreements, discussed below.

In February of each year, the Committee establishes target performance measures based largely on management’s confidential business plan and corresponding budget for that year, which would include revenue growth, cost reductions, and profit improvement. The MIP has 2 performance measures: net income available to common shareholders (75% weighting) and return on equity (25% weighting). The Committee also sets

 

16


Table of Contents

minimum and maximum performance levels for each performance measure. Maximum award targets reflect very ambitious goals which can only be attained when business results are exceptional and which have never been met, thus justifying the higher award payments.

For the NEOs, we base all MIP performance measures solely on corporate performance measures because they hold positions that have a substantial impact on the achievement of those measures. This approach also suggests that the collective individual performance will result in improved business performance and a favorable impact on shareholder value.

Actual payouts under MIP depend on the level at which we achieve the performance measures. Achievement at target for each performance measure results in a final award payment equal to the target incentive award payment. Actual performance at only the minimum performance level results in a final award payment equal to 50% of the target award amount. Actual performance above the target produces an award greater than the target award, up to 200%. We use straight-line interpolation to calculate payout values between minimum, target, and maximum levels. This means that we determine actual payouts by formula and that payouts are directly proportional to actual performance. Each 1% of actual performance below target but above the minimum affects the payout by 5%, and each 1% of actual performance above target but below the maximum affects the payout by 10%. For example, if actual performance were determined to be 97% or 3% below target, then the payout would be 85% of target. Similarly, if actual performance were determined to be 103%, or 3% above target, then the payout would be 130% of target. For 2007, the Committee set minimum, target and maximum goals for net income available to common shareholders (in millions) of $1,995.3, $2,217.0, and $2,438.7 and return on equity of 12.35%, 13.0%, and 14.3%.

The Committee reviews actual performance relative to pre-set goals and, in doing so, determines the amount of any final award payment. In determining final awards, the Committee considers adjusting GAAP net income available to common shareholders and return on equity for unplanned, unusual or non-recurring items of income or expense. In addition, the Committee has the discretion to increase or decrease such amount to be paid to the CEO, and the CEO has the discretion to increase or decrease the amount to be paid to the other NEOs. During 2007, the financial industry faced significant challenges. Mark-to-market valuation losses and credit pressures caused by volatility in the mortgage and capital markets impacted earnings significantly. For the 2007 MIP, both net income available to common shareholders and return on equity fell below the minimum, which would have resulted by formula in a zero MIP payment. However, the Committee recognized that with these adverse industry financial conditions, it was important to balance pay for performance with the retention of key talent. As a result, the Committee exercised its discretion and paid the corporate portion of MIP at the minimum level, 50% of target, for all participants. However, Mr. Wells and Mr. Rogers declined this discretionary award, resulting in a zero 2007 MIP payment to these officers. In 2007, the CEO exercised his discretion under the plan and reduced the MIP payment to certain of his direct reports on a case by case basis after considering line of business performance, individual responsibilities, overall financial performance, and other factors.

Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki