TCF Financial DEF 14A 2008
Documents found in this filing:
TCF FINANCIAL CORPORATION
200 Lake Street East, Mail Code EX0-03-A
Wayzata, MN 55391-1693
March 5, 2008
You are invited to attend TCF Financial Corporations Annual Meeting of Stockholders which will be held at the Marriott Minneapolis West, 9960 Wayzata Boulevard, St. Louis Park, Minnesota, on April 23, 2008, at 3:00 p.m. local time.
At the Annual Meeting you will be asked to elect four Directors, approve a Second Amended and Restated Certificate of Incorporation to eliminate the classified board structure for TCF (under which directors are elected to a three-year term in one of three classes) and to provide instead for the annual election of directors, and to give an advisory vote on the Audit Committees choice of independent registered public accountants. The Board of Directors recommends that you vote FOR all Director nominees and in favor of the other proposals.
Your vote is important, regardless of the number of shares you own. I urge you to vote now, even if you plan to attend the Annual Meeting. You can vote your TCF shares by Internet, by telephone, or by mail. Follow the instructions on the enclosed proxy card. (Internet or telephone voting actually costs TCF less than voting by mail, so I encourage you to consider it!) If you receive more than one proxy card, please vote each card. Remember, you can vote in person at the Annual Meeting even if you vote now by Internet, telephone, or mail.
TCF FINANCIAL CORPORATION
200 LAKE STREET EAST, MAIL CODE EX0-03-A
WAYZATA, MN 55391-1693
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 23, 2008
The Annual Meeting of Stockholders of TCF Financial Corporation is scheduled as shown below:
1. Elect four Directors, each to serve a one-year term (if Proposal No. 2 is adopted) or a three-year term as a member of Class III (if Proposal No. 2 is not adopted);
2. Approve a Second Amended and Restated Certificate of Incorporation to eliminate the classified board structure (under which directors are elected to a three-year term in one of three classes) and provide for the annual election of Directors;
3. Advisory vote on the appointment of KPMG LLP as independent registered public accountants for the fiscal year ending December 31, 2008; and
4. Other business properly brought before the Annual Meeting, if any.
You are entitled to vote at the Annual Meeting if you owned TCF Financial common stock on February 25, 2008.
Please vote the enclosed proxy card now even if you plan to attend the Annual Meeting. You can vote via the Internet or telephone (follow the instructions on the enclosed proxy card) or you can vote by regular mail by returning your completed proxy card(s) in the enclosed return envelope. As described under the caption About the Meeting in the proxy statement, if you do attend the Annual Meeting, you may revoke your proxy and vote in person. TCF will provide a webcast of its Annual Meeting of Stockholders on Wednesday, April 23, 2008 at 3:00 p.m. local time. This free webcast can be accessed through the Investor Relations section of TCFs website at www.tcfbank.com.
Important Notice Regarding the Availability of Proxy Materials
for the Annual Meeting of Stockholders to Be Held on April 23, 2008.
The proxy statement and annual report are available at www.tcfbank.com/annualmeeting.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE VOTE YOUR SHARES NOW. YOU CAN VOTE BY INTERNET OR TELEPHONE OR YOU CAN RETURN YOUR PROXY CARD(S) TO US IN THE ENCLOSED RETURN ENVELOPE.
March 5, 2008
TABLE OF CONTENTS
TCF FINANCIAL CORPORATION
200 LAKE STREET EAST, MAIL CODE EX0-03-A
WAYZATA, MN 55391-1693
The Board of Directors (the Board) of TCF Financial Corporation (TCF Financial, TCF, or the Company) requests your proxy for the Annual Meeting of Stockholders (the Annual Meeting or Meeting). The proxy is being solicited on behalf of the Board and TCF Financial. The Annual Meeting is scheduled as shown below:
The mailing address of the principal executive offices of TCF Financial appears at the top of this page.
This proxy statement and the accompanying form of proxy were mailed on approximately March 5, 2008. There were 126,316,196 shares of TCF Financials Common Stock (TCF Stock) outstanding as of February 25, 2008 (the Record Date).
What Proposals are on the Agenda for the Annual Meeting? Assuming a quorum is present, the proposals on the agenda are:
1. Elect four Directors, each to serve a one-year term (if Proposal No. 2 is adopted) or a three-year term as a member of Class III (if Proposal No. 2 is not adopted).
2. Approve a Second Amended and Restated Certificate of Incorporation to eliminate the classified board structure and provide for the annual election of Directors.
3. Advisory vote on the appointment of KPMG LLP as independent registered public accountants for the fiscal year ending December 31, 2008.
What is the Vote Required for Approval? For the election of Directors, the four candidates who receive the most votes (a plurality) are elected. Withholding authority to vote from a Director will have no effect on the voting for the election of the Director. Broker-voted shares (for which the registered owners provide no instructions) are counted toward the election of Directors; accordingly, abstentions will have the same effect as a vote against the proposal to approve the Second Amended and Restated Certificate of Incorporation. The affirmative vote of the holders of at least eighty percent (80%) of the total votes eligible to be cast is required to approve the Second Amended and Restated Certificate of Incorporation to eliminate the classified board structure and provide for the annual election of Directors. The vote on Proposal 3, retaining KPMG LLP as our independent registered public accountants, is merely advisory with no approval criteria.
How is a Quorum Determined? A majority of the shares of TCF Stock outstanding as of the Record Date must be present in person or by proxy at the Annual Meeting in order to have a quorum. Broker non-votes (as defined on page 2) of your shares are counted toward the quorum requirement. If you vote by proxy before the Meeting but
decide to withhold authority or abstain on one or more proposals, you are counted as being present at the Meeting and your vote counts toward the quorum requirement but will not be deemed to have been voted in favor of the proposal(s).
Who is Permitted to Vote at the Annual Meeting? You are entitled to vote at the Annual Meeting if you owned TCF Stock on the Record Date. Each share of stock you own as of the Record Date entitles you to one vote on each proposal at the Annual Meeting.
How do I (as a Stockholder) Vote? If your shares of TCF Stock are registered in your name, you can vote by proxy (in advance of the Meeting) by using one of these three options: (1) by Internet; (2) by telephone; or (3) by mail. If you want to vote by Internet or telephone, follow the instructions on your enclosed proxy card. If you want to vote by mail, please mark the enclosed proxy card(s) with your instructions and then sign, date and return the card(s) to us in the enclosed return addressed envelope. The individuals designated as proxies (see page 3) will vote your shares as for, against, abstain, or withhold on each proposal as you instruct them to. If you return your signed proxy card, but do not give any instructions, they will vote FOR all proposals. If any other business comes before the Meeting (and on certain other matters as listed on the accompanying proxy card), they will vote your proxy according to their own judgment. You can also vote at the Meeting (except stockholders listening via webcast, who do not have voting rights at the Meeting via the webcast). If your shares are registered in your name, you can bring a completed and signed proxy card to the Meeting and turn it in.
If your shares are held in street name, such as by a stock brokerage firm or other institution, you will receive instructions from your broker describing how to vote your shares.
Once I have Voted My Proxy, May I Revoke It and Vote At The Meeting? Yes, your proxy is revocable and is automatically revoked if you submit a new vote. You can vote your shares at the Meeting by written ballots available at the Meeting, even if you voted them in advance by proxy. However, if your shares are held in street name by a stock brokerage firm or other institution, you must receive (or obtain) and bring with you to the Meeting a proxy from them in your name. Stockholders who listen to the Annual Meeting via the webcast will not be able to revoke proxies at the Meeting via the webcast.
Who Pays for the Expenses of This Proxy Solicitation? TCF Financial is paying all costs of solicitation.
Will My Broker Vote My Shares if I Do Not Vote? Yes. Under the rules of the New York Stock Exchange, Inc. (NYSE), brokers who hold your shares in the brokerage firms account (in street name) have the authority to vote shares for which they do not receive instructions on all of the proposals at this Annual Meeting. If you wish to vote shares held in street name at the Meeting, you should contact your broker before the Meeting to obtain a proxy form in your name.
What is the Effect of Broker Non-Votes? A broker non-vote occurs when your broker or other institution holding title to your shares as your nominee (in street name) does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received voting instructions from you. Generally, if a broker returns a non-vote proxy, then the shares covered by such a non-vote proxy will be counted as present for purposes of determining a quorum but will not be counted in determining the outcome of the vote on that matter at the Annual Meeting. However, because the proposal to approve the Second Amended and Restated Certificate of Incorporation requires the affirmative vote of at least 80% of the total votes eligible to be cast, a non-vote will have the effect of a vote against that proposal.
May Stockholders Submit Proposals or Nominate Directors for This Meeting? The deadline for submitting proposals or nominations was February 23, 2008, ten days after TCF Financial provided public notice of the Annual Meeting date. No stockholder nominations or proposals were submitted by that date.
What is TCFs Policy on Stockholder Nominations? Please refer to Director Nominations on page 7 for a description.
TCF Financial Corporations current Restated Certificate of Incorporation divides the Board of Directors into three classes. Each Director serves for a term ending on the third annual meeting following the annual meeting at which the Director was elected. If Proposal No. 2 is approved by the shareholders, TCFs Board of Directors will no longer be classified, and all nominees would be elected to a one-year term, rather than a three-year term. The current Class III Directors, Messrs. Burwell, Cooper, Cusick, and Scherer, will stand for election at this meeting. If Proposal No. 2 is approved, Messrs. Burwell, Cooper, Cusick, and Scherer would, upon election, serve for a one-year term. If Proposal No. 2 is not approved, they would serve for a three-year term as a member of Class III (term expiring 2011). Whether or not Proposal No. 2 is approved, Directors other than Messrs. Burwell, Cooper, Cusick, and Scherer will continue to serve for the remainder of their existing term (Class I Directors until 2009 and Class II Directors until 2010). Unless instructed otherwise by the person submitting the proxy, all proxies received will be voted in favor of the Nominees listed in the following chart. All Nominees agree they will serve if elected. If any Nominee becomes unable to serve prior to the Annual Meeting, the person to whom your proxy gives the voting rights (Lynn A. Nagorske and/or Gregory J. Pulles) will vote for a replacement nominee.
* Excludes Director service with subsidiaries, predecessor companies or companies merged with TCF Financial.
Information About Directors and the Board. Currently, the Board is divided into three classes of equal (or close to equal) size. Directors serve three-year terms, with one class being elected each year. The number of Directors on the Board at any given time may range from seven to twenty-five. Within these limits, the Board sets the number of Directors from time to time.
What Is The Boards Recommendation On Voting For Directors? The Board unanimously recommends that TCF Financial stockholders vote For all the Nominees listed above.
The following describes the last five years (or longer) of business experience of the Nominees proposed for election as well as the other Directors whose terms do not expire this year. There is no family relationship between any of the Nominees, Directors or executive officers of TCF Financial. TCF National Bank (TCF Bank) is a wholly-owned national bank subsidiary of TCF Financial.
NOMINEES FOR ELECTION AT THIS MEETING
RODNEY P. BURWELL has been a Director of TCF Financial since 2000. He is the founder and former owner of Xerxes Corporation, a leading manufacturer of structural fiberglass products. Mr. Burwell is the principal owner of a partnership which owns the Silvertree Hotel in Snowmass Village, Colorado and the Madison Concourse Hotel in Madison, Wisconsin. Mr. Burwells other businesses include C&B Investments, which operates a group of John Deere agricultural dealerships; and Pace Analytical Services, Inc., an analytical testing company. Mr. Burwell is a member of the Board of Fairview Health Services, Opus Northwest, Ameriprise Certificate Company and RiverSource Life Insurance Company of New York.
WILLIAM A. COOPER has been Chairman of the Board of TCF Financial since its formation in 1987. Mr. Cooper was also the Chief Executive Officer of TCF Financial from 1987 2005, and was Chief Executive Officer of TCF Bank, a wholly-owned national bank subsidiary of TCF Financial, until 1993. Effective December 31, 2005, he retired as an employee and Chief Executive Officer of TCF Financial but continues to serve as non-executive Chairman. He is also a controlling shareholder of Cooper State Bank, a state bank organized under the laws of the State of Ohio. Mr. Cooper has been a Director of TCF Financial since its formation in 1987.
THOMAS A. CUSICK has been a Director of TCF Financial since 1988. He was Chief Operating Officer of TCF Financial from 1997 2002 and Vice Chairman from 1993 2002. Prior to 1993, he had been President of TCF Financial since its formation in 1987. Mr. Cusick also served as Chief Executive Officer of TCF Bank from 1993 1996. Mr. Cusick retired as an executive of TCF Financial effective in 2002.
PETER L. SCHERER has been a Director of TCF Financial since 2003. Mr. Scherer has been President and CEO of Scherer Bros. Lumber Co., a Minnesota-based retailer and manufacturer of residential building products, since 1995. He also serves as CEO of Alpine Capital, LLC and New Brighton Capital, LLC, residential construction finance companies, as Chief Partner of Albertville Investments, LLC and as President of S.B. General Partner, Inc., the general partner of Scherer Limited Partnership.
OTHER DIRECTORS (NOT NOMINEES AT THIS MEETING)
WILLIAM F. BIEBER has been a Director of TCF Financial since 1997. Mr. Bieber is Chairman of the Board and owner of Acrometal Companies, Inc., a Minnesota-based organization supplying various products to the commercial and industrial marketplace. In addition, Mr. Bieber is the owner and President of Acrometal Management Corporation, and owner of AcroTech Industries, Inc., a Texas-based operation supplying various products and services to the commercial and industrial marketplace.
LUELLA G. GOLDBERG has been a Director of TCF Financial since 1988. She has been a director of Hormel Foods Corporation since 1993, and served as a director of Reliastar Financial Corp. from 1976 until 2000. In 2001, she was elected to the Supervisory Board of ING Group, Amsterdam, the Netherlands, which acquired Reliastar Financial Corporation in 2001. In addition, she became a director of Communications Systems, Inc. in 1997, and served on the Board of Hector Communications Corporation from 20022006.
GEORGE G. JOHNSON has been a Director of TCF Financial since 1998. He is Managing Director of George Johnson & Company, a Certified Public Accounting firm. Mr. Johnson is a Certified Public Accountant.
LYNN A. NAGORSKE was elected Chief Executive Officer (Principal Executive Officer) by the Board effective January 1, 2006. Mr. Nagorske was the Chief Operating Officer of TCF Financial from 2002 2005. He was President of TCF Financial from 1993 2005 and has been a Director of TCF Financial since 1995. He has also held various other positions with TCF Financial and TCF Bank: Chief Executive Officer of TCF Bank (1997 1999); and Chief Financial Officer of TCF Financial (1987 1995).
GREGORY J. PULLES was elected to the Board in July 2006. He has been the General Counsel of TCF Financial since its formation in 1987, Secretary of TCF Financial since 1989, and a Vice Chairman of TCF Financial since 1993. Mr. Pulles has been an Executive Vice President of TCF Bank since 1989. He has also held various other positions with TCF Bank: Secretary (1989 1995) and General Counsel (1985 1993).
GERALD A. SCHWALBACH has been a Director of TCF Financial since 1999. Mr. Schwalbach is currently the Chairman of the Board of Spensa Development Group, LLC, and related companies, all of which are engaged in the real estate business. Prior to June 30, 2003, Mr. Schwalbach was Chairman of the Board of Two S Properties, Inc., Superior Storage I, LLC, and related companies. Since 1997, he has been a director of C.H. Robinson Worldwide, Inc., a logistics and transportation company. He was a director of BORN Information Systems, Inc., a computer consulting firm, from 1998 to 2004.
DOUGLAS A. SCOVANNER has been a Director of TCF Financial since June 2004. Mr. Scovanner has been Executive Vice President and Chief Financial Officer of Target Corporation since 2000. He was Senior Vice President and Chief Financial Officer of Target Corporation from 1994 2000. Before joining Target Corporation, he was Senior Vice President of Finance for Fleming Companies, Inc. He also served as Vice President and Treasurer of Coca-Cola Enterprises, as well as various positions with The Coca-Cola Company.
RALPH STRANGIS is a founding member of the Minneapolis law firm of Kaplan, Strangis and Kaplan, P.A. Mr. Strangis is also a director of Exante Bank, Inc., an affiliate of UnitedHealth Group; Sit Investments Associates, Inc.; and Cooper State Bank. He has been a Director of TCF Financial since 1991.
Committee Membership. The business, property and affairs of TCF Financial are managed by or under the direction of the Board. The Board met four times in 2007. All Board members are encouraged to attend Committee meetings. The following chart identifies the standing Board Committees (those which meet regularly) including those with audit, compensation, and nominating responsibilities, the members of each standing Committee and the number of meetings held in 2007. In addition, there was a duly-elected Executive Committee of the Board consisting of William Cooper, Lynn Nagorske, Ralph Strangis, and Luella Goldberg; however the Executive Committee did not meet during 2007. The Board of Directors has affirmatively determined that all members of the Audit Committee and the Compensation/Nominating/Corporate Governance Committee are independent. (See pages 1011 of this proxy statement.)
Board Committee Memberships and Meetings in 2007
Director Attendance. During 2007 all Directors attended at least 75% of the meetings of the Board and of the committees on which they serve. TCF requests Directors to attend the Annual Meeting if their schedules permit. The general practice on Board attendance at the Annual Meeting has been that the Directors standing for election attend the Meeting, as well as others whose schedules permit them to attend. Eight Directors attended the 2007 Annual Meeting.
TCF has established and operates within a comprehensive plan for Board membership/Director independence, committee membership, and ethical conduct. TCFs Corporate Governance guidelines may be accessed via the TCF website at www.tcfbank.com (click on About TCF, then click on Corporate Governance) or may be obtained from TCFs Corporate Secretary at the TCF address on page 1. Included in these corporate governance guidelines are the definitions used for determining whether a director is independent.
TCFs corporate governance is designed to be within the mainstream for our industry. TCF has a small to medium-sized Board that meets quarterly in January, April, July, and October. TCFs Board has four committees: Audit, Compensation/Nominating/Corporate Governance, Shareholder Relations/De Novo Expansion, and an Executive Committee. Directors are elected by a plurality vote, typically achieving more than a substantial majority of the votes cast.
Director Nominations. The Nominating Committee of the Compensation/Nominating/Corporate Governance Committee of the Board is responsible for Director nominations. This Committee consists entirely of independent Directors as determined by the Board under applicable rules. The Committees charter is included in the Compensation/Nominating/Corporate Governance Committee Charter which is available at www.tcfbank.com (click on About TCF, then click on Corporate Governance) or may be obtained from TCFs Corporate Secretary at the TCF address on page 1. The Committee will seek out nominees for new Directors as vacancies become available using the following criteria: A majority of the Directors must be independent, as determined by the Board under applicable rules; nominees shall possess expertise in general business matters and in such other areas as are relevant to Committees on which they are expected to serve (such as financial expertise, for Directors expected to serve as Audit Committee members); and nominees shall be individuals with the background, character, skills and expertise such that they will meaningfully contribute to the success of the Company and its operations. Stockholders may submit nominations to the Committee for consideration at next years Annual Meeting prior to the deadlines set forth on page 49. Any such nomination should include the information specified in Article II, Section 13 of the Bylaws, a copy of which may be obtained from the Corporate Secretary at the TCF address on page 1. Nominations should be mailed to the attention of the Compensation/Nominating/Corporate Governance Committee c/o TCFs Corporate Secretary at the TCF address on page 1. The Committee will evaluate all recommended nominees based on the criteria set forth above, and especially based on whether they will meaningfully contribute to the success of the Company and its operations. TCF has not, to date, paid any fees to any firm in connection with locating or evaluating any Director candidates.
Communications with Directors. TCFs process for communications with Directors is as follows: All communications should be in writing and sent to the Directors, to the Chair of the Compensation Committee as presiding Director, or to a specified Director, c/o TCFs General Counsel/Corporate Secretary at the TCF address on page 1. An interested party desiring to communicate directly with the non-management Directors should follow the same process, but address the communication to Non-Management Directors of TCF. Each communication is required to include information allowing TCF to verify the sender and the senders status as well as contact information for the sender (stockholder name, tax identification number (if applicable), address and phone number). Only interested parties who identify the nature of their interest in TCF will be entitled to communicate directly with Directors. Communications requiring special expertise will be forwarded to the Chair of the relevant Board Committee. All communications will be initially reviewed by an internal TCF response team which will screen the communication for appropriateness. If the communication is deemed not viable, the team will notify the sender promptly. For viable communications, the team will conduct research and provide it to the Director(s) to whom the communication is directed, along with the communication. Directors will be advised of all communications received, including those deemed not viable, and all non-management Directors will receive a copy of any communication addressed to them. Directors will generally respond to all viable communications within six months, although in some circumstances additional time may be required.
Regular Separate Non-Management Director Meetings. The non-management Directors, all of whom except Messrs. Cooper and Cusick are independent under the rules of the NYSE, meet independently in executive sessions on the same days as and immediately after the regularly scheduled meetings of the Board. The Chair of the Compensation Committee presides at these meetings. Once a year the session is limited to independent Directors.
Code of Ethics. TCF has adopted a Code of Ethics that applies to TCFs principal executive officer, principal financial officer, and principal accounting officer (the Senior Financial Management Code of Ethics), and a code of ethics for officers, employees, and Directors generally (Code of Ethics). Copies of both Codes are available from TCFs Corporate Secretary at the TCF address on page 1 of this proxy statement and are posted on the Corporate Governance section of the TCF website at www.tcfbank.com (click on About TCF, then click on Corporate Governance). Waivers of either Code for Directors or executive officers will be posted on that website as well as changes or updated copies, as required. To date, TCF has not issued any waivers of either Code.
Compensation/Nominating/Corporate Governance Committee Charter. All members of the Compensation/ Nominating/Corporate Governance Committee are listed on page 6 and are independent under the standards outlined on page 11. The Compensation/Nominating/Corporate Governance Committee operates under a formal charter that may be accessed via the TCF website at www.tcfbank.com (click on About TCF, then click on Corporate Governance) or may be obtained from TCFs Corporate Secretary at the TCF address on page 1.
Scope of Authority of Compensation Committee. The Compensation Committee is one of the three component Committees under the Compensation/Nominating/Corporate Governance Committee. Full authority is delegated from the Board to the Committee to act on the following matters without Board approval:
· Approval of Compensation Discussion and Analysis section of proxy statement
· Review of the overall adequacy, effectiveness and compliance of benefit programs
· Review of pay plans to ensure that they are consistent with the Companys stated compensation philosophy
· Review of the performance of executive officers
· Approval of long-term and short-term incentive plans and goals for executive officers of TCF Financial
· Approval of incentive awards and salary for TCF Financial executive officers
· Approval of severance agreements and employment contracts (including change in control provisions) for executives and officers of TCF Financial Corporation, except that any employment contract or severance contract for the CEO shall be approved by the full Board.
· Review of executive perquisites for executives of TCF Financial
· Approval of an annual summary of CEO perquisites
· Supervision of the Administration of the Pension Plan and TCF Employees Stock Purchase Plan
· Approve amendments as needed (except where the Plan requires full Board approval)
· Selection of the trustee, funding agents, investment managers and other similar asset managers for the trust funds
· As the Advisory Committee for the TCF Employees Stock Purchase Plan, directing the vote of shares for which participants in the Plan do not provide direction
· Exercise of all other administrative and interpretive authority under the Plans
· Exercise of all other responsibilities as provided in the Plans
· Supervision of the Administration of the Deferred Compensation Plans, Supplemental Employee Retirement Plan, and the Incentive Stock Program
· Approval of amendments as needed
· Issuance of awards (generally restricted stock grants)
· Exercise of all other administrative and interpretive authority under the Plan
· Exercise of all other responsibilities as provided in the Plans
· Supervision of the Administration of the Directors Plans
· Approval of amendments as needed
· Issuance of awards under the Directors Stock Program
· Exercise of all other administrative and interpretive authority under the Plan
· Exercise of all other responsibilities as provided in the Plans
Authority is delegated to the Compensation Committee to review the following matters and to recommend proposals for action by the full Board:
· Election of officers
· Compensation and employment contracts for the CEO of TCF Financial Corporation, including change in control arrangements
· Management Succession Plans for TCF Financial Corporation
Delegation of Authority by Compensation Committee. The Compensation Committee may form subcommittees from time to time and may delegate such duties and authority to the subcommittee(s) as the Committee approves. To date the Committee has established independent sub-committees from time to time for purposes of Internal Revenue Code (IRC) Section 162(m) (million dollar cap) and Rule 16b-3 of the Securities and Exchange Act of 1934, as amended, consisting of Committee members who meet applicable independence requirements. Whenever the following discussion deals with performance-based compensation, references to the Compensation Committee mean the Independent Subcommittee established under IRC Section 162(m).
Consultants. The Compensation Committee has authority to retain consulting firms for the purpose of evaluating Director, CEO, or executive compensation, but to date it has not done so. TCF from time to time retains Towers Perrin to provide advice and peer group information to assist in developing stock award terms, incentive compensation plans, and overall compensation amounts.
Committees Process For Determining Executive Compensation. The Committee meets regularly four times per year in January, April, July, and October, and occasionally has additional special meetings as needed. Each year in January the Committee considers whether any executive salaries should be increased and determines the target range for annual executive bonuses for that year. The Chief Executive Officer makes recommendations on compensation for other (non-CEO) compensation. The Committee also considers at that time if any executive stock grants should be made, bearing in mind the goal of always having a substantial performance earnings opportunity on a 3-5 year time horizon. After the year is completed, the independent Committee certifies the performance level achieved and any performance-based compensation earned.
Compensation Committee Interlocks and Insider Participation. Directors who served on the Compensation Committee in 2007 were Messrs. Strangis, Bieber, Burwell, Schwalbach, and Ms. Goldberg. None of these Directors has ever served as an officer or employee of TCF or any of its subsidiaries and the Board determined that all of them were independent for 2007 under the rules of the NYSE. Certain transactions between TCF and Directors Bieber, Burwell, Goldberg, Schwalbach, and Strangis are disclosed on page 10 under the caption What Transactions Were Considered Non-Material?.
Audit Committee Charter. The Audit Committee operates under a formal charter that may be accessed via the TCF website at www.tcfbank.com (click on About TCF, then click on Corporate Governance), or may be obtained from TCFs Corporate Secretary at the TCF address on page 1.
How Does the Board Determine Which Directors Are Independent? NYSE Rule 303A (the NYSE Rule), relating to corporate governance and director independence, requires the Board of Directors of TCF (and all other NYSE-listed companies) to have a majority of independent Directors, and requires the Board to make an affirmative determination that a Director has no material relationship with TCF in order for the Director to qualify as independent. The NYSE Rule, as incorporated into the regulations of the Securities and Exchange Commission (SEC), identifies certain transactions or relationships which automatically disqualify a Director from being independent. In the case of transactions or relationships with a Directors business, annual payments of more than the greater of $1,000,000 or 2% of the gross revenues of the Directors business are automatically disqualifying.
The Board of Directors adopted the following categorical standards, as permitted by the NYSE Rule. Transactions or relationships falling within a categorical standard are deemed automatically to be non-material.
· Regulation O-approved Commercial Loans from TCF Bank to a Directors Business. Loans from TCF Bank or a subsidiary to a Directors company are not material if they are not automatically disqualifying under the NYSE Rule, are subject to approval under Regulation O of the Federal Reserve Board, and TCF has not classified them as being in default.
· Transactions or Relationships Which Are Beneath Certain Thresholds and Are Not Automatically Disqualifying. Transactions or relationships between TCF and a Director and/or the Directors business are not material if they are not automatically disqualifying under the NYSE Rule, and the transaction (including employment) amounts are not in excess of $120,000 in a calendar year. (Prior to 2006, this threshold was generally five percent of the gross revenues of the Company or of the Directors company.)
· Retail Banking Relationships: Home Mortgages, Consumer Loans and Retail Deposit Accounts. Home mortgages, consumer loans and retail deposit accounts at TCF for a Director or immediate family members of the Director are not material if they are not automatically disqualifying under the NYSE Rule and are on ordinary retail consumer terms and conditions.
· Stockholder Ownership under 10%; Limited Partnerships; Service as Executive Officer. A Directors ownership of less than 10% equity interest in a company, or a limited partnership interest in a company, is not sufficient to cause the company to be considered as an indirect interest of the Director for purposes of determining material business relationships between the Director and TCF. However, a Directors service as executive officer of a company is sufficient to cause the company to be considered as an indirect interest of the Director for purposes of determining material business relationships between the Director and TCF, even if the Director has ownership of less then 10% equity interest in a company.
What Transactions Were Considered Non-Material? During 2005-07, TCF had certain transactions or business relationships with certain Directors, all of which come within one or more of the categorical standards or were otherwise determined to be not material.
Regulation O-Approved Loans and Consumer Banking Accounts. TCF allows Directors companies to enter into commercial loans, leases and deposit accounts with TCF, and also allows Directors and their immediate family members to enter into home mortgages, in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons as long as they do not contain more than the normal risk of collectibility or present other unfavorable features. All such loans and leases are approved as required by Regulation O of the Federal Reserve Board. The following items were reviewed by the Board and determined to be not material, based on the categorical standards listed earlier, and are not required to be reported in the proxy statement under applicable regulations.
The following Directors have companies that have, or during 2005-07 had, commercial loans or leases with TCF: Mr. Bieber, Mr. Scherer, and Mr. Strangis. The following Directors have companies or affiliated entities that have commercial deposit accounts with TCF: Mr. Burwell, Mr. Scherer, and Mr. Strangis.
The following Directors have, or during 2005-07 had, consumer banking deposit accounts at TCF, all of which are on ordinary retail terms: Mr. Burwell, Mr. Cooper, Mr. Cusick, Ms. Goldberg, Mr. Johnson, Mr. Nagorske, Mr. Pulles, Mr. Scherer, Mr. Scovanner, and Mr. Strangis.
Other Business Relationships. Silvertree Hotel of Snowmass Limited Partnership (Silvertree Hotel) provided lodging services to TCF for a business retreat in 2005. Director Burwell is the principal owner of a partnership which owns the Silvertree Hotel. Total fees received by Silvertree Hotel in 2005 were not large enough to require disclosure in the proxy statement under applicable regulations. The relationship qualified as non-material under the TCF categorical standards and thus was deemed to not compromise Mr. Burwells independence. There were no fees paid to Silvertree Hotel in 2006 or 2007.
During 2005-07, the firm of Kaplan, Strangis and Kaplan, P.A. (KSK) provided legal services to TCF (including its subsidiaries). Director Strangis is a member of the firm of KSK. Total fees paid by TCF to KSK in 2005 were not large enough to require proxy statement disclosure under then-applicable regulations of the SEC. TCF paid KSK fees of $322,570 in 2006, and $340,926 in 2007 for legal services, which in each case was less than five percent of the firms gross revenues. During 2005-07, CTS Corporate Travel Solutions (CTS) provided certain travel-related services to TCF (including its subsidiaries). Grace Strangis, the spouse of Director Ralph Strangis, is an officer, director and minority stockholder of CTS. Total payments to CTS by TCF in 2005 were not large enough to require disclosure under then-applicable regulations of the SEC, both separately and when combined with payments to and revenues of KSK. TCF made payments to CTS of $169,420 in 2006 and $140,167 in 2007 for travel related services, which in each case was less than five percent of the CTS gross revenues. In January 2007 and January 2008, the Board of Directors (with Director Strangis abstaining) reviewed these business relationships and concluded they were not significant, were consistent with the range of payments from TCF to KSK and CTS in prior years and that they did not constitute a material relationship that would compromise Director Strangis independence. The Board of Directors periodically reviews these longstanding and ongoing business relationships and considers the amounts and terms of the arrangements to be reasonable and appropriate for the services provided.
Several Directors are investors in Cooper State Bank, a state bank organized under the laws of Ohio, of which Mr. Cooper is controlling shareholder and Mr. Strangis was an organizer. In addition to Mr. Cooper, Mr. Burwell, Ms. Goldberg, Mr. Pulles, Mr. Schwalbach, Mr. Strangis, and certain members of TCFs current and former management are shareholders in the Bank. One current and one former member of TCFs management are directors of Cooper State Bank. In January 2008, the Board (with each affected Director abstaining from his or her own determination) determined these relationships involving Cooper State Bank are not material and do not compromise the independence of Directors Burwell, Goldberg, Schwalbach, or Strangis because these transactions are not with TCF, Cooper State Bank is not a competitor of TCF (its market area does not overlap TCFs), and Mr. Cooper has retired as TCFs Chief Executive Officer.
Which Directors are Independent? The NYSE evaluation of director independence is based on a three-year look-back period. On the basis of the foregoing categorical standards and review of the transactions and relationships between Directors and TCF over the years 2005-07, the Compensation/Nominating/Corporate Governance Committee and the Board of Directors affirmatively determined in January 2008 that the following Directors have no material relationship with TCF and are considered to be independent: Mr. Bieber, Mr. Burwell, Ms. Goldberg, Mr. Johnson, Mr. Scherer, Mr. Schwalbach, Mr. Scovanner, and Mr. Strangis. The Board of Directors determined that the following Directors are not independent: Mr. Cooper (TCFs former Chief Executive Officer), Mr. Nagorske (currently TCFs Chief Executive Officer), Mr. Pulles (currently TCFs Vice Chairman and General Counsel), and Mr. Cusick (TCFs former Chief Operating Officer), because current executives, recently-retired executives, and executives receiving compensation for prior services are deemed to be non-independent under the NYSE Rule.
Related Party Transaction Approval Process. TCFs Code of Ethics requires Directors to avoid conflicts of interest transactions. TCFs General Counsel reviews proposed transactions for compliance with Regulation O (if applicable) and determines which ones should be submitted to the Board of Directors of TCF Bank and/or TCF Financial for review. The Boards of Directors are responsible for reviewing any transactions submitted to them for approval, denial, ratification, or termination.
The following table shows TCFs compensation for outside Directors in 2007 including cash compensation and other non-cash expense. Inside Directors (Nagorske and Pulles) receive no additional compensation for their service as Directors.
(1) Consists of restricted stock award expense in 2007 of a three-year restricted stock grant of 2,389 shares covering the years 2006-08 to each Director shown in the chart. TCFs accounting policy for stock-based compensation is described in Note 1 to TCF Financials Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2007. Dividends are paid on the shares at the regular rate paid to stockholders. Based on TCFs achievement of more than 20% return on tangible equity (ROTE) in 2006 and 2007, one-third of this award vested for each outside Director in January 2007 and one-third vested in January 2008. The total grant date fair market value of each of the 2,389 share awards is $60,158, based on the grant date fair market value of $25.1814 per share.
(2) Consists of restricted stock award expense in 2007 for the following stock awards: 2,389 shares awarded in 2006 to all outside Directors as described in the previous footnote and 300,000 shares awarded to Mr. Cooper in 2005 in connection with his transition to Chairman-only status (Chairmans Stock Award), one-third of which was earned for fiscal 2006 and another one-third was earned for fiscal 2007 as a result of TCFs achievement of greater than 20% ROTE in 2006 and 2007. The Chairmans Stock Award will vest January 1, 2009 subject to Mr. Cooper continuing to serve as Chairman through that date or in the case of a change in control. Dividends are paid on all unvested shares at the regular rate paid to stockholders. TCFs accounting policy for stock-based compensation is described in Note 1 to TCF Financials Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 31, 2007.
(3) Consists of retirement benefits earned during 2007. This amount is forfeited if a Director does not complete at least five years of Board service (excluding service while an employee of TCF). There were no above market nonqualified deferred compensation earnings in 2007.
(4) Consists of matching charitable gift contributions by TCF on behalf of Directors. Mr. Strangis total reflects a $5,000 carryover from the previous year.
(5) This amount does not include distribution of $1,646,414 that Mr. Cusick received in 2007 as distributions from non-Director TCF benefit and deferred compensation plans.
Material Information Regarding Directors Compensation.
· Cash compensation (which may be deferred and invested in TCF Stock):
· Annual Retainer $20,000; Committee Chairs and Chairman receive an additional $20,000 annual retainer fee
· Board Meetings $1,000/meeting
· Committee Meetings $500/meeting ($1,000/meeting for Audit Committee members)
· Stock Grant Program:
· Periodically, but not more often than every three years, Directors receive TCF Stock grants equal to three times their annual base retainer: (excludes higher retainer for committee chairpersons) ($20,000 x 3 = $60,000).
· The number of shares granted is determined by dividing three times the annual retainer fee by the price of TCF Stock on the grant date.
· The stock vests over a minimum of three years.
· One-third of the shares will vest in each year that TCF Financials return on tangible equity exceeds 20%.
· Dividends are paid on unvested shares at the same rate as regular dividends to TCF stockholders.
· Once all shares vest or expire, new grants are made.
· Unvested shares will vest if a change in control occurs.
· Directors Retirement Plan:
· Directors with five or more years of service as an outside Director receive a retirement benefit.
· After five years, Directors are 50% vested with an additional 10% vesting each year thereafter until the tenth year when they are 100% vested. The amount of the annual benefits is the vested percentage times the annual Board retainer (currently $20,000) in effect at retirement.
· Benefits become 100% vested if a change in control occurs.
· The benefit is paid for a number of years equal to the Directors length of service on the Board.
· Directors Deferred Plan:
· Fees and stock grants may be deferred until service ends on the Board.
· All deferred fees are invested in TCF Stock.
· Dividends (market rate) are accumulated and invested in TCF Stock.
· Distributions for pre-2005 accounts are in installments or lump sum, as elected by the Director. For accounts accumulated in 2005 and after, all distributions are in a lump sum.
· TCF Matching Gift Program:
· TCF offers a matching gift program to supplement donations made by employees and Directors to
charitable organizations of their choice up to a maximum gift of $10,000 annually.
· Indemnification rights are provided to Directors under TCF Financials Articles of Incorporation and Bylaws, to the extent authorized under Delaware General Corporation Law and TCF maintains Directors and Officers Insurance.
· TCF pays for travel and other expenses of TCF Directors to attend Board meetings as a business expense.
· TCF typically holds one Board meeting per year (the Annual Board Retreat) at a remote location within or outside the U.S. and pays Directors travel and lodging expenses incurred in connection with the meeting, as well as those of the Directors spouses.
Provisions of the Chairmans Agreement (Non-Executive)
Terms of the Agreement under which Mr. Cooper is serving as non-employee Chairman from 2006-08 are:
· No salary or bonus.
· Regular outside Directors fees: $20,000 annual retainer, additional $20,000 Chairmans retainer, plus regular per-meeting fees paid to all Directors.
· Regular Directors stock grant: one-time grant equal to three times annual retainer to vest 1/3 each year TCF achieves more than 20% ROTE.
· Office available at TCF headquarters between meetings for use at his discretion.
· Business expenses: reimbursement per standard TCF policy and practice for Directors.
· Non-compete: the non-competition covenant in Mr. Coopers previous employment agreement continues in effect during his service as Chairman.
· Use of TCF plane upon request per TCF policy for business use only (personal use not permitted).
· Club dues and fees: TCF pays no club dues or fees.
· Excise tax cost reimbursement and stock vesting upon a change in control.
· Chairmans Stock Award of 300,000 shares vest on January 1, 2009 with 1/3 earned for each year in 2006-2008 in which greater than 20% ROTE is achieved or in the event of change in control.
Outstanding Equity Awards of Outside Directors at December 31, 2007
(1) Consists of the Directors stock awards covering the years 2006-08 as described in footnote (1) to the Director Compensation table on page 12.
(2) Consists of his Directors stock award of 2,389 shares, of which 1,593 were unvested, covering the years 2006-08 as described in footnote (1) to the Director Compensation table on page 12, his Chairmans Stock Award of 300,000 shares as described in footnote (2) to the Director Compensation table on page 12, and 267,450 shares remaining from a performance-based stock award made while he was Chief Executive Officer (see Year 2000 Stock Award on page 28 for details). The Year 2000 Stock Award shares vested in January 2008.
(3) Consists of his Directors stock award of 2,389 shares, of which 1,593 were unvested, covering the years 2006-08 as described in footnote (1) to the Director Compensation table on page 12 and 86,676 shares remaining from a performance-based stock award made while he was an executive with the Company (see Year 2000 Stock Award on page 28 for details). The Year 2000 Stock Award vested in January 2008.
(4) Consists of the number of unvested shares shown in the previous column, multiplied by the closing stock price on December 31, 2007, the last business day of 2007, of $17.93 per share.
The following chart shows ownership as of January 31, 2008 (except as indicated in footnote (5)) of TCF Stock by those indicated.
* Represents 1.0% or less of the outstanding common stock of the class.
(1) All shares are directly owned or purchasable by options exercisable within 60 days after January 31, 2008, and the person indicated has sole voting and dispositive power, except as indicated in the following footnotes. Includes shares beneficially owned by family members who share the persons household, with respect to which shares the indicated person disclaims any beneficial ownership, as follows: Mr. Bieber, 14,000 shares; Mr. Brown, 12,000 shares; Mr. Burwell, 58,000 shares; Mr. Cooper, 23,733 shares; Ms. Goldberg, 10,000 shares; Mr. Pulles,
11,160 shares; and all Directors, nominees and executive officers combined, 173,113 shares.
(2) Each amount showing the percentage of outstanding shares owned beneficially has been calculated by treating as outstanding and owned the shares which could be purchased by the indicated person upon the exercise of existing options within 60 days after January 31, 2008.
(3) Includes shares which could be purchased upon the exercise of existing options within 60 days after January 31, 2008. As of January 31, 2008, there were 99,000 options outstanding for all executive officers combined.
(4) Includes whole shares of TCF Stock allocated to accounts in the TCF Employees Stock Purchase Plan, for which the Named Executives and certain Directors have shared voting power as follows: Mr. Bailey, 24,820 shares; Mr. Brown, 5,876 shares; Mr. Jasper, 5,536 shares; Mr. Nagorske, 60,484 shares; Mr. Pulles, 48,036 shares; and all Directors, nominees and executive officers combined, 338,985 shares. Also includes whole shares of TCF Stock in the trust for the ESPP Supplemental Plan (as defined on page 31), for which the Named Executives do not have voting power, as follows: Mr. Bailey, 17,218 shares; Mr. Brown, 19,894 shares; Mr. Jasper, 1,420 shares; Mr. Nagorske, 62,072 shares; Mr. Pulles, 48,190 shares; and all Directors, nominees and executive officers combined, 232,930 shares. Also includes whole shares of TCF Stock (vested and unvested) in the trust for the TCF Financial Executive Deferred Compensation Plan or the TCF Financial Directors Deferred Compensation Plan for which the Directors or Named Executives do not have voting power, as follows: Mr. Bailey, 216,159 shares; Mr. Bieber, 53,689 shares; Mr. Brown, 162,026 shares; Mr. Burwell, 12,808 shares; Mr. Cooper, 6,210; Mr. Cusick, 319,536 shares; Ms. Goldberg, 141,873 shares; Mr. Johnson, 52,863 shares; Mr. Nagorske, 436,766 shares; Mr. Pulles, 321,580 shares; Mr. Scherer, 11,129 shares; Mr. Strangis, 52,403 shares; Mr. Schwalbach, 19,306 shares; Mr. Scovanner, 10,490 shares; and all Directors, nominees and executive officers combined, 2,059,477 shares.
(5) Beneficial ownership of shares by JPMorgan Chase & Co. is in the following manner: sole voting power 4,272,109 shares; shared voting power 6,033 shares; sole dispositive power 6,459,466 shares; shared dispositive power 20,078 shares. The foregoing information is based upon the Form 13G filed with the SEC by JPMorgan Chase & Co. on January 29, 2008. Information is as of December 31, 2007. Beneficial ownership of shares by Barclays Global Investors is in the following manner: sole voting power 6,414,988 shares; shared voting power 0 shares; sole dispositive power 6,986,833 shares; shared dispositive power 0 shares. The foregoing information is based upon the Form 13G filed with the SEC by Barclays Global Investors on February 6, 2008. Information is as of December 31, 2007.
(6) The Advisory Committee for the TCF Employees Stock Purchase Plan has shared voting power with participants of all allocated shares in the Plan. Advisory Committee members disclaim ownership of these shares. Information on the table as to shares beneficially owned by Ms. Goldberg, and Messrs. Bieber, Burwell, Schwalbach, and Strangis, does not include any shares beneficially owned by the Advisory Committee.
(7) Includes shares pledged as collateral for loans undertaken by Directors or Named Executives as follows: Mr. Bailey, 20,000 shares; Mr. Cooper, 3,208,502 shares; Mr. Cusick, 100,000 shares; Mr. Nagorske, 251,592 shares; Mr. Schwalbach, 67,530 shares; and all Directors, nominees, and executive officers combined, 3,782,365 shares.
Were All Stock Ownership Reports Timely Filed by TCF Financial Insiders? (Section 16(a) Beneficial Ownership Reporting Compliance). Section 16(a) of the Securities Exchange Act of 1934, as amended, requires TCF Financials Directors, executive officers and persons who beneficially own more than 10% of the outstanding shares of TCF Stock to file stock ownership reports with the SEC and the NYSE. Based upon representations signed by officers and Directors, TCF Financial believes that all reports required by officers and Directors were filed on a timely basis during 2007.
The following describes the last five years (or longer) of business experience of executive officers of TCF Financial, or its principal wholly-owned subsidiary TCF Bank, who are not Directors of TCF Financial. In these descriptions, TCF Bank Lakeshore is the Illinois-Wisconsin division of TCF Bank. TCF Bank Michigan is the Michigan division of TCF Bank, and TCF Bank Minnesota and TCF Bank Colorado are the Minnesota and Colorado divisions respectively, of TCF Bank. TCF Bank Wisconsin, TCF Bank Michigan, TCF Bank Minnesota, and TCF Bank Colorado are former subsidiary banks that were merged into TCF Bank.
TIMOTHY P. BAILEY (age 52) was elected President and CEO of TCF Bank in 2006. Prior to that, Mr. Bailey was President of TCF Bank Lakeshore from 2001 2005. He has also held various other positions with TCF Bank: Chief Operating Officer/Lending of TCF Bank Lakeshore since 2000; President and Chief Executive Officer of TCF Bank Wisconsin since 1993, and prior to that Vice President of Commercial Lending/Loan Workouts with TCF Bank.
PAUL B. BRAWNER (age 59) was elected Executive Vice President of TCF Bank in 2000. Prior to that, Mr. Brawner was a Senior Vice President of TCF Bank since 1998.
JAMES S. BROUCEK (age 44) was elected Treasurer of TCF Financial and TCF Bank in 2005 and Senior Vice President of TCF Financial in 2002. He also has been Chief Investment Officer since 2001 and Executive Vice President since 2007 of TCF Bank. Prior to that, Mr. Broucek was Senior Vice President and Controller of TCF Bank Michigan since 1995.
NEIL W. BROWN (age 49) was elected President and Chief Operating Officer of TCF Financial effective January 1, 2007. Mr. Brown has been President of TCF Financial since January 2006 and was Chief Financial Officer from 1998 through December 2006. He was an Executive Vice President of TCF Financial from 1998 to 2005. He was also Treasurer of TCF Financial from 1998 2005.
CRAIG R. DAHL (age 53) has been President of TCF Equipment Finance, Inc., a wholly-owned subsidiary of TCF Bank, since 1999 and Chairman and Chief Executive Officer of Winthrop Resources Corporation, a wholly-owned subsidiary of TCF Bank, since 2003. Mr. Dahl has also been an Executive Vice President of TCF Financial since 1999.
ROBERT F. GRANT (age 52) was elected President of TCF Bank Michigan effective January 1, 2008. Prior to that, Mr. Grant was an Executive Vice President of TCF Bank Michigan since 2005. Prior to that, he was a Senior Vice President of Fifth Third Bank in Southeast Michigan.
THOMAS F. JASPER (age 39) was elected Executive Vice President and Chief Financial Officer of TCF Financial in January 2007. Prior to that, Mr. Jasper was Executive Vice President and Chief Financial Officer of TCF Equipment Finance, Inc., and Executive Vice President of Winthrop Resources Corporation. Prior to joining TCF Equipment Finance, Inc. in 2001, he held various other positions, including Senior Manager at KPMG LLP.
MARK L. JETER (age 51) was elected President of TCF Bank Minnesota in 2000. Mr. Jeter has also held various positions with TCF affiliates: Chief Executive Officer of TCF Bank Michigan (1998 2000), President of TCF Bank Michigan (1999 2000), Executive Vice President of Retail Banking of TCF Bank (1996 1998), and Senior Vice President of Retail Banking of TCF Bank (1994 1996).
MICHAEL R. KLEMZ (age 59) was elected Executive President of TCF Bank Lakeshore in 1999. Prior to that, Mr. Klemz was a Senior Vice President of TCF Bank Lakeshore.
CANDACE H. LEX (age 47) was elected Executive Vice President and Chief Marketing Officer of TCF Financial in 2005. Prior to that, Ms. Lex was Senior Vice President and Director of Marketing/Product Planning for National Commerce Financial Corporation (now SunTrust Banks, Inc.), where she was Director of Marketing since 1998.
TIMOTHY B. MEYER (age 49) was elected President of TCF Bank Arizona in 2006. Prior to that, Mr. Meyer was Executive Vice President of Consumer Lending for TCF Bank Minnesota since 2002. Prior to that, he was a Senior Vice President of Consumer Lending from 1998 2002.
MARK W. ROHDE (age 46) was elected President of TCF Bank - Lakeshore in 2006. Prior to that, Mr. Rohde was Executive Vice President of Consumer Lending of TCF Bank - Lakeshore since 1997.
ROBERT H. SCOTT (age 60) has announced his retirement effective December 31, 2008. He was President of TCF Bank Michigan from 2005 through 2007 and is currently the Director of Corporate and Community Development since January 1, 2008. Prior to that, Mr. Scott was Executive Vice President and Manager of Commercial Banking of TCF Bank Michigan since 2003. Prior to that, he was Executive Vice President and Manager of Commercial Banking of TCF Bank Minnesota.
DAVID M. STAUTZ (age 51) was elected Executive Vice President of TCF Bank in 2007 and was elected Senior Vice President, Controller and Assistant Treasurer of TCF Financial, and Assistant Treasurer of TCF Bank in 1999. He has been Controller of TCF Bank since 2000. Mr. Stautz is a member of the American Institute of Certified Public Accountants.
EARL D. STRATTON (age 60) was elected Executive Vice President and Chief Information Officer of TCF Financial in 1995 and TCF Bank in 2001. Prior to that, Mr. Stratton was a Senior Vice President of TCF Financial and a Senior Vice President of TCF Bank since 1985.
Compensation Committee of the Board of Directors (Committee)
The Relationship Between the Elements of Compensation
- How the Level of One Element Affects the Levels for the Other Elements
Since the Annual Cash Incentive is based on a percentage of Base Pay (0 200%) and since the annual value of the Long-Term Equity Incentive is now targeted at a multiple of one times Base Pay, the level of Base Pay affects the Annual Cash Incentive and the Long-Term Equity Incentive, and therefore increases in Base Pay for a Named Executive will increase his annual Cash Incentive and Long-Term Equity Incentive accordingly. If a Named Executive does not receive an Annual Cash Incentive in a given year (this happened for 2006), there would be no impact on his Base Pay, nor on his Long-Term Equity Incentive. If a Named Executive earned no Long-Term Incentive in a given year, there would be no impact on his Base Pay, nor on his Annual Cash Incentive.
The Payments in the Event of Termination were set independently of the other elements of compensation. They are based on a multiple of salary and annual cash incentive, plus equity vesting and excise tax.
Analysis of the Tools the Committee Uses
The Committee uses (1) tally sheets, (2) annual peer group (Peer Group) comparative analysis, (3) an annual review prepared by the consulting firm of Towers Perrin, (4) a perquisite survey, and (5) total TCF Stock ownership data, to determine whether the objectives of the TCF Executive Compensation policies are being met.
How TCF Ties the Elements of Executive Compensation to the Committees Objectives July 2007 Review of Executive Compensation.
At each July meeting, the Committee reviews compensation in light of the objectives, in preparation for decisions to be made at the following January meeting. At the July 2007 meeting, the Committee compared TCFs levels of base salary and Total Direct Compensation (which is defined as base salary plus annual cash bonus) with that of the Peer Group. Although the Committee has not established a target, the Committee would generally like to have base salary levels when viewed in the aggregate at the median of the Peer Group in order to remain competitive. The Committee feels the Company must have base salaries which in the aggregate are close to the median for the industry in order to attract and retain executives. Above average performance should generally be rewarded with the variable elements of compensation: the annual cash incentive, and stock option and restricted stock awards. The Committee infrequently adjusts base salaries as necessary based on the Peer Group data and to reflect any increase in duties. Although the Committee does not have a formal policy, it would like to generally have more than fifty percent of compensation contingent on performance of corporate and individual goals.
For 2006, the base salaries for the Named Executives as a group equaled the median for the Peer Group and ranked 16th out of the 31 banks in the Peer Group. Mr. Nagorskes base salary ranked 17th. In 2006, the Total Direct Compensation (base salary plus annual cash incentive) paid to the Named Executives as a group ranked 27th. Mr. Nagorskes Total Direct Compensation ranked 29th. This low ranking was due to the fact that because the EPS growth target was not met, no cash incentive was paid for 2006 except for one individual, the President of TCF Equipment Finance who was under a separate incentive plan not linked to growth in EPS.
The Committee also reviewed for the Named Executives group Total Compensation, defined as the total of base salary, annual cash bonus, and long-term incentive (for TCF the value of stock options and restricted stock grants). For 2006, Named Executives as a group ranked 18th in the Peer Group by Total Compensation.
The Committee then compared compensation rankings with the financial performance rankings. TCF ranked fifth in the Peer Group in financial performance based on ROA (25% weighting), ROE (25% weighting), and EPS (50% weighting), which covered performance over the several years described above. TCFs high ranking was due to superior performance in the ROA and ROE categories, where it ranked first and second for all years included. TCFs one, two, three and five-year EPS growth rankings ranged from 14th to 19th, reflecting a significant drop in performance in this category.
In addition to the review conducted for the Named Executives as a group, the Committee also reviewed the peer data for each of the Named Executives. The Chief Executive Officers Total Compensation (base salary plus annual bonus plus long-term incentive) ranked him 24th in the Peer Group. The second highest paid Named Executive ranked 17th, the third 25th, the fourth 21st, and the fifth 21st. Again this was due to the failure to pay any annual cash incentive in 2007 to all but one person in the group.
The Towers Perrin report delivered to the Committee at its 2007 meeting concluded that the overall levels of Total Compensation were generally aligned with EPS performance, but the pay and performance relationship weakened (pay lagged performance) when considering ROA and ROE performance.
Since the annual cash incentive and long-term incentive are performance-based awards under IRC Section 162(m), the Committee has discretion to lower the amount of the award, but does not have discretion to increase the award above what the executive has earned under the terms of the plan. The Committee has never waived a goal or reduced the performance measure required to achieve vesting of a performance-based goal.
The Relationship of Pay Between Named Executives
All of the Named Executives are participating in the Annual Cash Incentive program on the same basis they can earn a cash incentive up to 200% of their Base Pay. The most recent Option and Restricted Stock awards were granted so that the estimated annual value approximated Base Pay. Thus, when the Committee sets the scale for Base Pay for the Named Executives, that scale carries through to the incentive portion of their compensation.
In setting Base Pay, the Committee did not use any specific formula to determine the scale, rather it set Base Pay based primarily on responsibility level and tenure with the Company, and for all but Mr. Nagorske, based upon Mr. Nagorskes recommendations. The Committee does review the Peer Group data collected in connection with the Towers Perrin annual review, and has a general goal of keeping aggregate Base Pay somewhat near the median. The Committee feels that among the Named Executives, it is most important for Mr. Nagorskes Base Pay to be somewhat near the median in the market. The Base Pay of other Named Executives should then be set off of his Base Pay, taking into account responsibilities, performance, and tenure at TCF. The Committee set Mr. Nagorskes pay primarily based upon the market data and his responsibilities as CEO. His 2006 ranking for Base Pay within the Peer Group was 17th out of 31, just below the median. The Committee feels that Mr. Brown, the second in command, to whom Mr. Bailey reports, should receive less Base Pay than Mr. Nagorske, but more than the other Named Executives. Mr. Browns Base Pay also reflects his exceptional performance. The Committee set Mr. Pulles Base Pay based on his tenure with the Company and his performance as General Counsel. Mr. Baileys Base Pay was set based on his responsibility for the overall performance for the bank operation and his tenure and performance. Mr. Jaspers salary reflects his responsibilities as Chief Financial Officer and is lower than his peers because he only recently assumed this position (it is expected to be increased over time).
The Committee has reviewed the relationship between Base Pay among the Named Executives and finds it reasonable compared to the Peer Group.
For 2006, the Peer Group data on Base Pay is:
Highest Paid as % of Second Highest Paid: 152%
Highest Paid as % of Average of Second through Fifth Highest Paid: 188%
Second Highest Paid as % of Average of Third through Fifth Highest Paid: 134%
TCFs 2007 Base Pay Scale data:
Mr. Nagorskes Base Pay as % of Mr. Brown: 152%
Mr. Nagorskes Base Pay as % of Average of Messrs. Brown, Pulles, Bailey, Jasper: 202%
Mr. Browns Base Pay as % of Average of Messrs. Pulles, Bailey, Jasper: 149%
The Committee feels that the TCF pay scale is reasonable in light of this market data.
At the October 2007 meeting, the Committee continued its review of the executive compensation structure and the need for changes. After that meeting, the Committee chair conducted a series of meetings and discussions with other members of the Committee and the Board, and Mr. Nagorske, which culminated in a number of decisions made and finalized at the January 2008 Committee meeting.
Role of the CEO
Mr. Nagorske meets with the Chairman of the Compensation Committee on an informal and regular basis and reviews the performance of the Named Executives, future management changes, and compensation matters. Mr. Nagorske generally makes recommendations to the Committee for only the other Named Executives; these recommendations extend to all elements of compensation. The Committee receives no recommendation from him as to his Base Pay, but does receive recommendations from him as to the structure of the Elements of Compensation, which will affect his total compensation. In 2007, after the Committee determined to revise the annual cash incentive goal structure to move to a corporate goal and individual goals and to make an additional equity award at the January 2008 meeting (discussed below under Analysis of Decisions), Mr. Nagorske and the Compensation Committee Chairman had a number of discussions about appropriate goals and the size and terms of the equity award. Mr. Nagorske then made a recommendation for the corporate goal and for the individual goals, namely a corporate ROE goal to be pegged to a high percentile based on FDIC large bank data, and individual goals of EPS pegged to the 2008 plan, deposit growth, loan and lease growth, and credit quality. These goals were arrived at
based on the Committees desire to have the annual cash incentive pegged to the underlying key performance measures that should deliver stockholder value. Deposit growth, loan and lease growth, and credit quality were proposed because they are key drivers of financial performance for TCF. Mr. Nagorske also proposed that the size of the equity awards that are expected to cover a three-year period for the Named Executives, including himself, be based on an annual estimated value equal to the Named Executives Base Pay (Mr. Nagorske included). Mr. Nagorske also recommended that the option grant have a performance period of three years.
The Chairman of the Compensation Committee reviewed these recommendations informally with other members of the Committee and Board and the Towers Perrin firm, and then had them presented to the Committee in final form at the January 2008 meeting. The Committee changed the vesting formula such that only one half of the grant would vest after three years, the other half after four.
Analysis of Decisions Made by the Committee in January 2008
1. For 2008 Leave Base Salary Levels As-Is. For 2006, TCFs base pay in the aggregate represented the median for the Peer Group (two Named Executives were below the median; three were above). In keeping with its practice of adjusting base salary infrequently and only when the levels are substantially different than market or to reflect new duties, the Committee made no changes in base salary for 2007 and 2008, except that Mr. Browns base was increased in January of 2007 to $460,000 to reflect the new duties he assumed as Chief Operating Officer.
2. Add Individual Goals for 2008 for Annual Cash Incentive Move Away From the Single EPS Growth Goal. The Committee concluded for the annual cash incentive element of compensation it should move to utilizing individual goals as a component of performance measurement and away from a single EPS goal. The Company is performing very well from an ROA and ROE perspective, and that superior performance is not being recognized, as reflected in the substantial differential between the 2006 Peer Group financial performance ranking (7) versus pay ranking (18). The Company needs to provide financial incentives tied to key financial objectives. Additionally, as occurred in 2007, EPS growth may be tied to a number of factors, such as securities and branch sales, which do not necessarily reflect ongoing enhanced earnings and share price improvement. The Committee also concluded that individual achievements in the areas of deposit and power asset growth, and maintenance of high credit quality need to be rewarded, since these are key to the Companys long-term success and franchise value. The Committee believes that it is important to tie incentives to achievement of the component parts of the balance sheet and income statement for which each of the Named Executives is responsible. For the 2008 Annual Cash Bonus, the Committee has required that, in addition to achievement of a single mathematical measure (ROE), that the individual bonus be tied to achievement of a number of important underlying business goals, such as deposit and loan growth, and credit quality.
3. For 2008 Use An Overall Corporate Goal for Annual Cash Incentive Tied to An ROE Measure That Reflects Superior Performance in the Market. The Committee has surveyed the ROE performance of all FDIC insured institutions with an asset size of greater than $10 billion. For the first three quarters of 2007, the average ROE was 10.82%. TCFs ROE for that three quarter period was 26.58%, ranking it 6th out of 116 financial institutions. TCFs ROE for the last three years ending 2007 was 25.82%, 24.37%, and 28.03%. An ROE of 15% would place a bank at approximately the 85th percentile in the FDIC data cited. The Committee believes that although an ROE of 15% is attainable based on historical performance, it is not certain and represents superior performance. The Committee recognized that in order to achieve superior ROE performance, TCF will need to continue to avoid credit losses and the level of charge-offs experienced by many other banks and continue to have a significant number of deposit accounts in relation to its competitors. The Committee has established this as the corporate goal for 2008: the executive will qualify for a cash incentive of 200% of base salary if the Company achieves this performance. If this level is not achieved, no incentive will be paid. If the goal is achieved, the Committee will then exercise negative discretion in setting payouts under the annual incentive plan by review of performance under individual goals.
4. For 2008 Establish Individual Goals for Annual Cash Incentive. In January 2008, the Committee approved individual goals for each Named Executive. Under IRC Section 162(m), the Committee retains the discretion to reduce an award for which the Named Executive is otherwise eligible under the ROE goal. The Committee will reduce the cash incentive award of 200% of base salary based on achievement/failure to achieve these individual goals (% represents weighted relative importance of each goal):
The Individual Goals and Their Weighting
These goals reflect the main drivers of TCF Financial Performance and each executives role and duties. For the individual goals which have a numeric component, there is a threshold, target, and maximum level. If the individual achieves the threshold level, one quarter of the weighting for that category is achieved. At target, one half of the weighting is achieved. At maximum, all of the weighting is achieved.
Following is an example of how the threshold, target and maximum level would work in calculating the amount of the 37.5% weighting for the deposit growth component of Mr. Nagorskes bonus:
· Assume the threshold level of the deposit growth goal is achieved. This means that 25% of the weighting for this component of Mr. Nagorskes bonus would be achieved.
· The deposit growth goal for Mr. Nagorske is weighted at 37.5%. Performance at the threshold level would mean that 25% of the 37.5% weighting would be achieved, or 9.375% (25% x 37.5% = 9.375%).
· Mr. Nagorske qualifies for a potential bonus of up to 200% of his base salary if the Company achieves ROE of 15% or more. Mr. Nagorskes potential maximum bonus for the deposit growth component is therefore 75% (200% x 37.5% = 75%). This potential bonus is reduced by the Committee in exercising negative discretion under IRC Section 162(m) to the extent individual goals have not been achieved. Assuming that only 9.375% of the deposit growth goal is achieved (at the threshold level), this means that Mr. Nagorskes bonus for this component would be only 18.75% (200% x 9.375%).
The threshold levels for those goals with numeric components were established based on numeric improvement felt to represent good performance, target representing very good performance, and maximum representing superior performance, in relation to current conditions in the banking industry. The Chief Executive Officer initially made these judgments and recommended them to the Committee, which has reviewed the underlying assumptions and methodologies and modified them as they deemed appropriate.
The numeric targets in some cases represent a percentage increase from current levels. In the case of deposit growth, the threshold level represents modest growth from current levels, and target and maximum what the Committee believes is good and excellent growth, which the Committee feels is appropriate in the current competitive market for deposits and 2007 performance. For credit quality, the threshold uses the measure of nonperforming assets and is set at current levels. Target and maximum represent what the Committee believes is good and excellent reduction from these levels. Target diluted EPS goals are based on Company plan, while threshold and maximum represent lower and higher levels than plan, respectively regarded as good and excellent performance against plan. The loan and lease growth threshold targets and maximums are regarded as good, very good, and excellent growth from current levels.
The Committee believes that these threshold levels represent a modest level of difficulty of attainment. If an individual performed at threshold for all goals, they would earn a bonus of 50% of their base salary. The Committee believes that the target levels represent a significant level of difficulty of attainment. If an individual performed at the target level for all goals, they would earn a bonus of 100% of their base salary.
5. Utilize Stock Options For Long-Term Incentive. The Committee concluded that it should move away from restricted stock grants to stock options because it believes that the use of options will optimize the Named Executives focus on all the elements of Company performance which influence share price. Since a restricted stock award delivers value even in the absence of share price increase, the Committee believes that options currently provide greater incentive to enhance stockholder value and share price appreciation. The Committee feels that the next few years will be difficult for the banking business for a variety of reasons, including falling home prices and potential weak economic conditions. TCF needs to retain its key executives, and it cannot do so without a competitive stock grant/option plan. In order to incent the executives to achieve financial performance, the Committee has decided to return to the use of stock options, which have not been used in the recent past. Although there is no downside equity risk to a Named Executive with stock options, the Committee believes that since stock options increase in value when TCF Stock price improves, and that since the largest overall factor in stock price is solid consistent earnings and perceived franchise value, the Named Executives will be properly and highly motivated to make the correct long-term decisions. Use of stock options for long-term incentive is cost effective for the Company. One-half of the awards are expensed over a three-year period based on their grant date fair value (described below) and one-half is expensed over a four-year period, but the Company receives a tax deduction upon exercise for the amount of the gain to the Named Executive (difference between market value at the time of exercise and strike price). Achievement of performance goals are anticipated to lead to earnings increase which historically have led to stock price appreciation, resulting in tax benefits to the Company upon exercise.
The Committee concluded that additional grants should be made in 2008 because 93% (90% for Mr. Jasper) of the grants made in 2006 almost certainly will be forfeited due to failure to achieve the EPS goals set for those grants. The Committee feels that there should be a meaningful long-term incentive in place. In making the stock option (and restricted stock) awards, the Committee reviewed years of service, position, and past performance. The option awards are considered performance-based under IRC Section 162(m).
The Committee made individual awards with an annual value equal to or near one times base salary (for the three individuals receiving a restricted stock grant, the value of those grants plus the value of the option grant, were combined to achieve this target), and for this purpose used an assumed value for a stock option equal to one-third of the stock price. The Committee believes that the value of the stock incentive component of total compensation should approximate base salary. The Committee reviewed a Black-Scholes calculation of value prepared by management and the valuations reflected in that analysis were consistent with this valuation approach. Black Scholes is a method commonly used to calculate the fair value of option grants. The Committee intends not to make any additional awards until 2011; i.e. these are viewed as three-year awards, with a three-year performance period. One half of the options will vest three years from the date of grant, and the other half will vest four years from the date of grant. Commencing in 2011, the Committee expects to use annual restricted stock and option awards rather than awards covering several years.
6. Grant Restricted Stock to Three Individuals. The Committee made restricted stock awards to three individuals, each of whom has over twenty years tenure, including Mr. Bailey and Mr. Pulles. The use of stock options with a ten-year life has less value for these individuals because of their tenure. One half of the restricted stock grants will vest on January 31, 2011, if the Company achieves an average ROE of 15% for the three years 2008, 2009, and 2010, and the other half will vest on January 31, 2012, if the Company achieves average ROE of 15% for the three years 2009, 2010, and 2011. These stock awards are considered performance-based under IRC Section 162(m).
As with stock options, the use of stock awards for long-term incentive is cost effective for the Company. One-half of the awards are expensed over a three-year period, based on their grant date fair value and one-half is expensed over a four-year period, but the Company receives a tax deduction based on their fair value on the later of the vesting date or distribution date. Achievement of the performance goals are anticipated to result from earnings increases, which have historically led to stock price appreciation, resulting in tax benefits on the vesting or distribution date which reduces the after-tax cost of the awards.
7. Chief Executive Officer and other Named Executives Total Compensation Package. In reviewing Mr. Nagorskes compensation for 2007 and 2008, including his level of base salary, annual cash incentive, and long-term incentive component, the Committee concluded that his base and incentive total of $2,100,000 for 2007
and his maximum potential of base and incentive total of $2,100,000 for 2008 is both competitive and not excessive in relationship to the latest Peer Group information and the Companys performance in 2007 and his goals for 2008. In 2006, the Company delivered superior ROA and ROE performance yet no cash incentive was paid. In 2007, the ROA and ROE performance remained at high levels 1.76% and 25.82% and the Named Executives received substantial cash incentives and four of the Named Executives vested a substantial restricted stock grant, although the Companys share price was disappointing. The Committee believes that Mr. Nagorskes compensation for 2008 is set at an appropriate level. The Committee believes that the goals established for Mr. Nagorske for 2008 net income, deposit growth, credit quality improvement, and growth in loan and lease assets, are appropriate in order to align his compensation with operating performance intended to enhance stockholder value. The Committee believes the 2007 compensation and the target 2008 compensation for the other Named Executives are competitive and in line with Peer Group performance. The Committee believes that pay is appropriately aligned within the Executive Group. See the discussion above under The Relationship of Pay Between Named Executives.
8. Year 2000 Stock Award. The Committee met on January 21, 2008 and confirmed the vesting of the second half of the Year 2000 Stock Award in January 2008 based on achievement of reported cash EPS of $2.13 (versus the goal of $2.12). As defined in the TCF Financial Incentive Stock Program, cash EPS is diluted EPS, adjusted to eliminate the after-tax impact of the amortization and other adjustments to goodwill and other intangible assets acquired in business combinations (Cash EPS). In addition to the Named Executives (excluding Mr. Jasper) and four other executives, Directors Cooper and Cusick and four other former executives had shares remaining from the Year 2000 Stock Award which also vested.
In 2000 the Committee approved restricted stock awards to fourteen members of TCF Financials executive management group which vested only if management achieved substantial increases in Cash EPS over the eight years from 2000-2007:
· Fifty percent of the award vested upon a 75% increase in Cash EPS over the base year (1999) Cash EPS of $1.06, to $1.855 or more. In 2004, TCF Financial achieved a Cash EPS of $1.87, the 75% increase was achieved, and the first 50% of the shares vested in January 2005.
· The remaining fifty percent of the award vested when TCF achieved (and exceeded) Cash EPS of $2.12, more than a 100% increase in Cash EPS over the base year (1999) Cash EPS of $1.06.
The Company reported $2.13 Cash EPS for 2007, and therefore the second half of the Year 2000 Stock Award vested in January 2008. The Committee believes that in view of the Companys financial performance over the eight year performance period (an average ROA of 1.89% and average ROE of 24.92%), the vesting is appropriate and was called for by the application of the EPS formula established in 2000. In confirming the vesting of the second half of the Year 2000 Stock Award, the Board and Compensation Committee reviewed 2007 reported Cash EPS of $2.13 and received a detailed analysis which identified gains on the sale of securities and branches and other components of reported Cash EPS. The Board and Compensation Committee considered that net income in both the base year (2000) and the current year (2007) included earnings from these types of sources. The Board and Compensation Committee also considered specific charges recorded in both periods. The Board and Compensation Committee had previously evaluated and monitored the composition of earnings on a number of occasions during 2007 in the context of the anticipated calculation of net income under the Year 2000 Stock Award formula. The Independent Subcommittee, formed to comply with the provisions of IRC Section 162(m) and consisting of Mrs. Goldberg, Messrs. Schwalbach and Burwell, then certified the results as reported for 2007, which satisfied the formula for vesting the remaining 50% of the Year 2000 Stock Award. As noted above, all references to the Compensation Committee mean this Subcommittee whenever the discussions deal with performance-based compensation.
9. Annual Cash Incentive 2007. The Committee approved the cash incentive payout of 200% of base salary for 2007. The annual cash incentive opportunity for 2007 for the Named Executives used an EPS target: the target range for EPS was from $1.98 to $2.12, with the incentive being equal to the Named Executives base salary multiplied by a percentage which is the sum of a) the product of 10 times the number of whole cents by which 2007 diluted EPS exceeds $1.97 per share, up to $2.02 per share, and b) the product of 15 times the number of whole cents by which diluted EPS exceeded $2.02 per share, up to $2.12 per share. The maximum potential cash incentive was 200% of salary at $2.12 diluted EPS. EPS was calculated as provided in the TCF
Performance-Based Compensation Policy, using diluted EPS, rounded to the nearest cent. Over the past five years the goals for the annual cash incentive for each years Named Executive group has been as follows: 2007 200%; 2006 0%; 2005 140%; 2004 200%; 2003 0%; or an average of 108%.
Year 2006 Executive Stock Awards (Year 2006 Stock Awards) In January 2006, the Committee approved the Year 2006 Stock Awards consisting of restricted stock awards aggregating 477,500 shares in total to twelve members of TCF Financials executive management group and to one former executive. The 55,000 shares granted to the former executive were cancelled upon his retirement. The awards are performance-based under IRC Section 162(m) and can be earned over the years 2006-08.
The number of shares that will vest in the Year 2006 Stock Awards is tied to year over year increases in EPS during each of the years 2006, 2007 and 2008, in excess of the base EPS (for 2005) of $2.00.
The Percentage of Shares Earned for each of the fiscal years 2006, 2007 and 2008 will be multiplied by the number of Shares awarded to determine the number of Earned Shares for each of the three years ending December 31, 2006, 2007, and 2008. The number of Earned Shares, once earned, may not be reduced and the total number of Earned Shares may not exceed 100% of the shares awarded. No portion of the Year 2006 Stock Awards was earned for 2006; for Messrs. Nagorske, Brown, Pulles, and Bailey, 7% of the Year 2006 Stock Awards was earned for 2007. Mr. Jasper earned 10% of the Year 2006 Stock Award for 2007.
Any shares which are not Earned Shares by the end of 2008 will be forfeited on January 31, 2009. Although the Earned Shares will be calculated for each of the years 2006, 2007 and 2008, the Earned Shares will not actually vest until January 31, 2011.
In January 2007, the Committee approved two additional performance-based awards for 10,000 shares each as part of the Year 2006 Stock Awards program to two newly-elected executives including Thomas F. Jasper, who was elected Executive Vice President and Chief Financial Officer (Principal Financial Officer) effective January 1, 2007. The performance-based goals for vesting are based on increases in EPS which generally follow the chart set forth above, but adjusted to allow the possibility of earning 100% of the shares in two years (2007-08) instead of three years (2006-08). The Committee also approved two additional non-performance-based awards of 10,000 shares each to these executives.
Generally, executives must remain employed with the Company until January 31, 2011 in order to receive their Earned Shares under the Year 2006 Award. However, if an executive leaves the Company before then on account of retirement, disability or death, any Earned Shares accumulated under the Year 2006 Awards to the date of the executives departure will vest on January 31, 2011 (or sooner in the case of disability or death). Any outstanding Year 2006 Award shares will fully vest upon a change in control (as defined) of TCF Financial.
January 2008 Stock Options / Restricted Stock Grants to Named Executives
The Companys policy has always been to grant stock options or restricted stock at its regularly scheduled meetings. For stock options, the exercise price is determined at fair market value on the date of grant. The Company does not coordinate the timing of grants with the release of material information.
The Committee made the following awards at its January 21, 2008 regular meeting:
Dividends on Stock Awards The Committee previously approved paying dividends on unearned and unvested stock awards for the currently outstanding Year 2006 Stock Awards. The Committee has decided that no dividends will be paid in connection with the 2008 restricted stock grants or future restricted stock grants to Named Executives until they vest because the Committee has concluded that the award should be earned before dividends are paid.
Employment and Change in Control (CIC) Agreements
TCF has employment contracts with 7 executive officers, including all of the Named Executives, except Mr. Jasper, and change in control agreements with 14 executive officers, including all of the Named Executives. The agreements are submitted to and approved by the Committee.
The Committee is aware of the TCF Stock ownership of the Named Executives, which is substantial and which has accumulated for the CEO and others over many years. The Committee believes that payments in the event of a termination or change in control are necessary despite this wealth accumulation. The primary purpose for the employment agreements was to ensure that the Named Executives would remain with the Company when Mr. Cooper, the former CEO, retired. The purpose for the CIC Agreements is first to ensure that the Named Executives do not seek alternate employment and second to ensure that the Named Executives keep the stockholders interests paramount in connection with any possible business combination. The Company has been subject to substantial takeover speculation. The Committee believes that with the Employment and CIC Agreements in place the Named Executives will be dissuaded from leaving the Company and will properly approach any possible business combination without fear of losing their position.
Generally, Mr. Nagorskes CIC agreement provides three years worth of income protection (base salary and and average of annual cash bonus), vesting of all unvested stock grants and options, and an excise tax cost reimbursement after termination of employment following a change in control whereas all other CIC agreements provide two years worth of income protection as well as equity vesting and excise tax cost reimbursement. The Committee selected three years and two years, respectively, based on what was felt to be the norm in the financial
services industry. In addition, all unvested shares of restricted stock vest upon a change in control (as defined) without a requirement for termination of employment. Mr. Nagorskes CIC cash has 24 months from a CIC to terminate employment and receive his payment. The Committee agreed to this provision because it believes that the CEO should have absolute discretion to leave the Company after an acquisition and that it is not realistic or in the best interests of the Company to require him to remain employed.
The other Named Executives have the right to leave the Company and receive their CIC benefit within a thirty-day window (and receive their CIC cash payment) that begins immediately preceding the first anniversary from the closing date. The Committee established this provision in order to require the individual to provide service for at least a year, and to ensure that the individual provides the acquiror the opportunity to establish a relationship. The Committee determined that it was not essential from a retention standpoint to give individuals below the CEO the same termination rights and that they should not have absolute discretion to leave the Company immediately after an acquisition.
The tables on pages 42 and 43 of this proxy statement summarize estimated payments under the employment and change in control contracts.
Benefits, Retirement and Deferred Compensation Philosophy
TCF considers benefits to be an employee hiring and retention matter, for both executives and non-executives, and therefore designs its program to be competitive with other banks and with retailers generally and also structures such benefits to reward longevity with the Company. There is no target level of income for the retirement program for either executives or non-executive employees. The Named Executives generally have the same benefits as are provided for full-time employees.
Medical, etc. Benefits. Named Executives are eligible for the same group medical, dental, and life insurance as is available to TCF full-time employees generally.
401(k) Plan and ESPP Supplemental Plan. TCF offers an employee stock purchase plan (Employees Stock Purchase Plan) in which employees can contribute from 0 50% of their pay to the Employees Stock Purchase Plan, with matching contributions on the first 6% of pay contributed. The match is 50%, 75%, or 100% of each dollar contributed, depending on length of service with TCF. The plan qualifies as an employee stock ownership plan (ESOP) and a qualified tax or deferred compensation plan (401(k) Plan) under the IRC. Named Executives can contribute the same percentage of pay as non-executives and receive the same match percentage, based on length of service with TCF. Named Executives length of service for this purpose includes only actual time of service with TCF and is calculated in the same way as for employees generally.
Because of certain IRC limits that apply to them, most of the Named Executives contributions and Company matching contributions under the Employees Stock Purchase Plan are limited by law. All amounts over the statutory limit are credited to a nonqualified supplemental plan (the ESPP Supplemental Plan) which mirrors the operation of the Employees Stock Purchase Plan. This ESPP Supplemental Plan, which was approved by stockholders in 2005, covers a total of approximately 240 employees and also helps the Employees Stock Purchase Plan to pass certain nondiscrimination tests. The Committee approves and maintains the ESPP Supplemental Plan as a matter of fairness for the Named Executives so they can contribute as much, as a percentage of pay, as non-executives and receive the corresponding employer matching contributions.
The following chart illustrates the operation of our Employees Stock Purchase Plan and its related ESPP Supplemental Plan for an executive with $600,000 in salary and bonus who contributes 6% to the two plans combined and whose contributions are matched at the 100% rate:
Illustration of Operation of Employees Stock Purchase Plan and ESPP Supplemental Plan
Example assumes employee has 100% matching rate. Additional factors will affect the exact calculations.
(1) Limited to 4% of covered pay ($225,000) in 2007. Will be limited to 5% of covered pay ($230,000) in 2008.
(2) Equals 6% of total salary and bonus ($600,000) less Employee Contribution to Employees Stock Purchase Plan ($36,000 - $9,000 = $27,000)
None of the Named Executives has any individual or special retirement or pension arrangements with the Company. None of the Named Executives or any other participants are credited under the Employees Stock Purchase Plan or the ESPP Supplemental Plan with any years of service other than for years worked at TCF. Covered pay consists only of salary and bonus; it does not include stock grants made to Named Executives or other special items of executive pay.
TCFs Employees Stock Purchase Plan and ESPP Supplemental Plan are designed to encourage investment in TCF Stock and more than 83% of their assets are invested in TCF Stock. The following chart reflects Named Executive investment in TCF Stock in these programs as of December 31, 2007:
TCF Stock Ownership and Account Balances of the Named Executives
in the Employees Stock Purchase Plan and ESPP Supplemental Plan
(1) Reflects number of shares of TCF Stock (including partial shares not shown in the table and deemed shares in the ESPP Supplemental Plan) multiplied by $17.93 per share, the closing price on December 31, 2007 and rounded to the nearest $10.
Pension Plan. TCF discontinued pay credits to its pension plan and related supplemental plan in 2006 in connection with the enhancements to the Employees Stock Purchase Plan. Pension benefits are disclosed in the table on page 38 and described in the information following the table.
Deferred Compensation. From 1988 2004, Named Executives were allowed to defer salary, bonus and stock awards to the TCF Executive Deferred Compensation Plan (Deferred Compensation Plan) and to invest them in TCF Stock or other investments. The Company philosophy was that this was a tax-deferred savings account there was no Company match and no guaranteed or above-market earnings or interest were paid on accounts. TCF fully funded a related trust (a so-called rabbi type of trust) with corresponding assets, almost all TCF Stock, to provide the benefits when due. Named Executives elected to invest substantially all of the amounts they deferred into TCF Stock. TCF froze the plan from any new contributions in 2005 because of a new tax law, IRC Section 409A, which introduced substantial new regulatory and tax uncertainties and risks for the Company and participants under this plan.
The following table summarizes the account balances and investments, including deemed TCF Stock ownership, of the Named Executives in the Deferred Compensation Plan as of December 31, 2007:
TCF Stock Ownership and Account Balances of the Named Executives
in the Executive Deferred Compensation Plan
(1) Reflects number of shares of deemed investment in TCF Stock (including partial shares not shown in the table) multiplied by $17.93 per share, the closing price on December 31, 2007 and rounded to the nearest $10.
In keeping with TCFs philosophy of the Deferred Compensation Plan as a tax-deferred savings account emphasizing investment in TCF Stock, the following table illustrates that the accumulated account balances in the plan are derived largely from the Executives own deferral contributions and from earnings and appreciation over the years of the Named Executives deemed investment in TCF Stock.
Source of Accumulated Account Balances in the TCF Executive Deferred Compensation Plan
(1) There were no preferential or above-market earnings or appreciation in 2007 or previous years.
(2) Although TCF makes no employer contributions, it pays record keeper and trustee expenses of the Plan and trust.
Section 162(m) of the Internal Revenue Code
Although the Company intends that compensation generally will either be performance-based or deferred, as necessary, such that compensation does not exceed the tax deduction limits of the IRC, the Company reserves the right to pay compensation that is not deductible in appropriate circumstances. Deductibility of compensation may be adversely affected by factors outside the control of the Company, such as legislation relating to deferred compensation distributions or other aspects of compensation.
Recovery of Performance-Based Compensation
The Sarbanes-Oxley Act requires recovery of certain incentive and equity compensation from the Principal Executive Officer and Principal Financial Officer in the event of restatement of financial results due to misconduct. The Audit Committee is responsible for determining if bonus or stock compensation paid to the Principal Executive Officer or Principal Financial Officer should be recovered in the event of a restatement.
The Compensation Committee has reviewed the preceding Compensation Discussion and Analysis and discussed it with management. Based on its review and discussion, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in TCFs proxy statement.
BY THE COMMITTEE:
The following summary compensation table (the Summary Compensation Table) identifies the cash and non-cash compensation awarded to or earned by the Named Executives in 2006 and 2007.
Summary Compensation Table