Webster Financial DEF 14A 2008
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant þ
Filed by a Party other than the Registrant ¨
Check the appropriate box:
Webster Financial Corporation
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
March 7, 2008
To the Shareholders of
Webster Financial Corporation:
You are cordially invited to attend the Webster Financial Corporation Annual Meeting of Shareholders to be held on Thursday, April 24, 2008 at 4:00 p.m., Eastern Time, at the Courtyard by Marriott, 63 Grand Street, Waterbury, Connecticut 06702.
At the Annual Meeting, you will be asked: (i) to elect three directors to serve for three-year terms; (ii) to approve the Qualified Performance-Based Compensation Plan for an additional five-year term; (iii) to ratify the appointment of KPMG LLP as the independent registered public accounting firm of Webster for the year ending December 31, 2008; and (iv) to transact any other business that properly comes before the Annual Meeting or any adjournments of the meeting.
The Board of Directors unanimously recommends that you vote FOR the election of all the Boards nominees for election as directors and FOR each of the other proposals listed above. We encourage you to read the accompanying Proxy Statement, which provides information regarding Webster and the matters to be voted on at the Annual Meeting. Also enclosed is our 2007 Annual Report.
It is important that your shares be represented at the Annual Meeting. Whether or not you plan to attend the Annual Meeting, you may vote your common shares via a toll-free telephone number or on the Internet or you may complete, date, sign and return the enclosed proxy card in the enclosed postage paid envelope. If you attend the meeting and prefer to vote in person, you may do so.
WEBSTER FINANCIAL CORPORATION
145 Bank Street
Waterbury, Connecticut 06702
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 24, 2008
To the Shareholders of
Webster Financial Corporation:
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders (the Annual Meeting) of Webster Financial Corporation (Webster) will be held on Thursday, April 24, 2008 at 4:00 p.m., Eastern Time, at the Courtyard by Marriott, 63 Grand Street, Waterbury, Connecticut 06702, for the following purposes:
The Board of Directors has fixed the close of business on February 21, 2008 as the record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting. Only shareholders of record at the close of business on that date will be entitled to notice of and to vote at the Annual Meeting or any adjournments thereof.
March 7, 2008
IT IS IMPORTANT THAT YOU VOTE PROMPTLY. THEREFORE, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE VOTE YOUR COMMON SHARES VIA THE TOLL-FREE TELEPHONE NUMBER LISTED ON THE PROXY CARD, THE INTERNET OR BY MAIL.
Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on April 24, 2008: This proxy statement, along with our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and our 2007 Annual Report, are available free of charge on the Investor Relations section of our website (www.wbst.com).
WEBSTER FINANCIAL CORPORATION
145 Bank Street
Waterbury, Connecticut 06702
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 24, 2008
Solicitation, Voting and Revocability of Proxies
This Proxy Statement (the Proxy Statement) is being furnished to the shareholders of Webster Financial Corporation, a Delaware corporation (Webster or the Corporation), as part of the solicitation of proxies by its Board of Directors from holders of its outstanding shares of Common Stock, par value $.01 per share (the Common Stock), for use at the Annual Meeting of Shareholders of Webster to be held on Thursday, April 24, 2008 at 4:00 p.m., Eastern Time, at the Courtyard by Marriott, 63 Grand Street, Waterbury, Connecticut 06702 (the Annual Meeting) and at any adjournments thereof. The Proxy Statement, together with the enclosed proxy card, is being mailed to shareholders of Webster on or about March 7, 2008.
The Annual Meeting has been called for the following purposes: (i) to elect three directors to serve for three-year terms (Proposal 1); (ii) to approve the Qualified Performance-Based Compensation Plan for an additional five-year term (Proposal 2); (iii) to ratify the appointment by the Board of Directors of the firm of KPMG LLP as the independent registered public accounting firm of Webster for the year ending December 31, 2008 (Proposal 3); and (iv) to transact any other business that properly comes before the Annual Meeting or any adjournments thereof.
If you vote using the enclosed proxy card, your shares will be voted in accordance with the instructions indicated. Executed but unmarked proxies will be voted FOR the election of the Boards nominees as directors, FOR the approval of the Qualified Performance-Based Compensation Plan for an additional five-year term and FOR the ratification of the appointment of Websters independent registered public accounting firm. Except for procedural matters incident to the conduct of the Annual Meeting, the Board of Directors does not know of any matters other than those described in the Notice of Annual Meeting that are to come before the Annual Meeting. If any other matters are properly brought before the Annual Meeting, the persons named in the proxy will vote the shares represented by such proxy on such matters as determined by a majority of the Board of Directors. The proxies confer discretionary authority to vote on any matter of which Webster did not have notice at least 30 days prior to the date of the Annual Meeting.
The presence of a shareholder at the Annual Meeting will not automatically revoke that shareholders proxy. A shareholder may, however, revoke a proxy at any time before it is voted: (i) by delivering either a written notice of revocation of the proxy or a duly executed proxy bearing a later date to Mark S. Lyon, Assistant Secretary, Webster Financial Corporation, 145 Bank Street, Waterbury, Connecticut 06702; (ii) by re-voting by telephone or on the Internet; or (iii) by attending the Annual Meeting and voting in person.
The cost of soliciting proxies for the Annual Meeting will be borne by Webster. In addition to use of the mails, proxies may be solicited personally or by telephone or telecopy by directors, officers and employees, who will not be specially compensated for such activities. Webster also will request persons, firms and companies holding shares in their names or in the name of their nominees, which are beneficially owned by others, to send proxy materials to and obtain proxies from those beneficial owners and will reimburse those holders for their reasonable expenses incurred in that connection. Webster also has retained Morrow & Co., LLC, a proxy soliciting firm, to assist in the solicitation of proxies at a fee of $7,000, plus reimbursement of certain out-of-pocket expenses.
Who Can Vote. The securities which can be voted at the Annual Meeting consist of shares of Common Stock of Webster with each share entitling its owner to one vote on all matters properly presented at the Annual Meeting. There is no cumulative voting of shares. The Board of Directors has fixed the close of business on February 21, 2008 as the record date for the determination of shareholders of Webster entitled to notice of and to vote at the Annual Meeting. On the record date, there were 9,915 holders of record of the 56,599,164 shares of Common Stock then outstanding and eligible to be voted at the Annual Meeting.
Voting. If your Common Stock is held by a broker, bank or other nominee (i.e., in street name), you should receive instructions from that person or entity that you must follow in order to have your shares of Common Stock voted. If you hold your Common Stock in your own name and not through a broker or another nominee, you may vote your shares of Common Stock:
Whichever of these methods you select to transmit your instructions, the proxy holders will vote your Common Stock in accordance with your instructions. If you give a proxy without specific voting instructions, your proxy will be voted by the proxy holders as recommended by the Board of Directors.
Vote by Telephone. If you hold your Common Stock in your own name and not through your broker or another nominee, you can vote your shares of Common Stock by telephone by dialing the toll-free telephone number printed on your proxy card. Telephone voting is available 24 hours a day until 11:59 p.m., Eastern Time, on April 23, 2008. Easy-to-follow voice prompts allow you to vote your shares of Common Stock and confirm that your instructions have been properly recorded. If you vote by telephone, you do not need to return your proxy card.
Vote by Internet. If you hold your Common Stock in your own name and not through your broker or another nominee, you can choose to vote via the Internet. The website for Internet voting is printed on your proxy card. Internet voting is available 24 hours a day until 11:59 p.m., Eastern Time, on April 23, 2008. As with telephone voting, you will be given the opportunity to confirm that your instructions have been properly recorded. If you vote via the Internet, you do not need to return your proxy card.
Vote by Mail. You can vote by mail by signing, dating and returning the enclosed proxy card in the enclosed postage paid envelope.
The presence, in person or by proxy, of at least one-third of the total number of outstanding shares of Common Stock entitled to vote at the Annual Meeting is necessary to constitute a quorum at the Annual Meeting. Assuming the presence of a quorum at the Annual Meeting, directors will be elected by a majority of the votes cast by shares present in person or represented by proxy and entitled to vote. The affirmative vote of the majority of the votes cast is required to approve the Qualified Performance-Based Compensation Plan for an additional five-year term and to ratify the appointment of Websters independent registered public accounting firm. Shareholders votes will be tabulated by the persons appointed by the Board of Directors to act as inspectors of election for the Annual Meeting. Abstentions and broker non-votes will be treated as shares that are present, or represented, and entitled to vote for purposes of determining the presence of a quorum at the Annual Meeting. Broker non-votes will not be counted as a vote cast on any matter presented at the Annual Meeting. Abstentions will not be counted in determining the number of votes cast in connection with any matter presented at the Annual Meeting.
Electronic Delivery of Proxy Materials. As a shareholder, you have the option of electing to receive future proxy materials (including annual reports) online over the Internet. This online service provides savings to Webster by eliminating printing, mailing, processing and postage costs associated with hard copy distribution. You may enroll for this service on the Internet after you vote your shares in accordance with the instructions for Internet voting set forth on the enclosed proxy card. You may also enroll for electronic delivery of future Webster proxy materials at any time on the Corporations website at www.wbst.com. Under Electronic Enrollment, select the Click Here To Enroll link. Then select the box indicating your appropriate form of share ownership, and follow the instructions for electronic delivery enrollment. In the future, you will receive an email message, at the address you provided while enrolling, informing you that the Webster proxy materials are available to be viewed online on the Internet. Follow the instructions to view the materials and vote your shares. Your enrollment in electronic delivery of Webster proxy materials will remain in effect until revoked by you.
Annual Report on Form 10-K. Webster is required to file an annual report on Form 10-K for its 2007 fiscal year with the Securities and Exchange Commission (SEC). Shareholders may obtain, free of charge, a copy of the Form 10-K by writing to Mark S. Lyon, Assistant Secretary, Webster Financial Corporation, 145 Bank Street, Waterbury, Connecticut 06702. Our annual report on Form 10-K is available on the Corporations website, www.wbst.com.
ELECTION OF DIRECTORS
At the Annual Meeting, three directors will be elected to serve for three-year terms. Unless otherwise specified on the proxy, it is the intention of the persons named in the proxy to vote the shares represented by each properly executed proxy for the election as directors of the persons named below as nominees. The Board of Directors believes that the nominees will stand for election and will serve if elected as directors. If, however, any person nominated by the Board fails to stand for election or is unable to accept election, the proxies will be voted for the election of such other person as the Board of Directors may recommend. Assuming the presence of a quorum at the Annual Meeting, directors will be elected by a majority of the votes cast by shares present in person or represented by proxy and entitled to vote at the Annual Meeting. There are no cumulative voting rights in the election of directors.
As required by Websters Bylaws, directors must be elected by a majority of the votes cast with respect to such director in uncontested elections (number of shares voted for a director must exceed the number of votes cast against that director). In a contested election (a situation in which the number of nominees exceeds the number of directors to be elected), the standard for election of directors will be a plurality of the shares represented in person or by proxy at any such meeting and entitled to vote on the election of directors. In addition, under Websters Bylaws, incumbent directors nominated for reelection are required, as a condition to such nomination, to submit a conditional letter of resignation. In the event an incumbent nominee for director fails to receive a majority of the votes cast at an annual meeting, the Nominating and Corporate Governance Committee will consider the resignation and make a recommendation to the Board whether to accept or reject the resignation, or whether other action should be taken. The Board will act on the Nominating and Corporate Governance Committees recommendation and publicly disclose its decision and the rationale behind it within 90 days from the date the election results are certified. The director who tenders his or her resignation will not participate in the Boards decision.
George T. Carpenter, whose term ends as of the Annual Meeting, will be retiring from the Board of Directors as of the date of the Annual Meeting. Mr. Carpenter has served as a director of Webster since 1998. Prior to the acquisition of Eagle Financial Corporation by Webster in 1998, Mr. Carpenter served as a director of Eagle Financial Corporation since 1988 and a director of Eagle Bank or one of its predecessors since 1972. The Board of Directors greatly appreciates the service and contributions of Mr. Carpenter to the success of Webster.
The Board of Directors currently consists of 10 members, and is divided into three classes, which are composed of four, three and three directors, respectively. The term of office of one class of directors expires in each year, and their successors are elected for terms of up to three years and until their successors are elected and qualified. Effective upon the Annual Meeting, the Board of Directors will consist of 9 members, divided into three classes of three directors each.
Information as to Nominees and Other Directors
The following table sets forth the names of the Board of Directors nominees for election as directors and the current directors of Webster. Also set forth is certain other information with respect to each such persons age at December 31, 2007, the periods during which such person has served as a director of Webster and positions currently held with Webster and its wholly owned subsidiary, Webster Bank, National Association (Webster Bank).
Joel S. Becker is Chairman of the Board and Chief Executive Officer of Torrington Supply Co., Inc., a Waterbury, Connecticut based wholesale distributor of plumbing, heating and industrial pipe valve and fitting supplies to contractors and industry. Mr. Becker is Chairman of the Compensation Committee and a member of the Executive Committee and the Nominating and Corporate Governance Committee.
William T. Bromage is President, Chief Operating Officer and a director of Webster and Webster Bank and Vice Chairman of Webster Bank. Mr. Bromage was elected President in April 2000 and Chief Operating Officer in January 2002. From September 1999 to April 2000, he served as Senior Executive Vice President, Business Banking and Corporate Development of Webster and Webster Bank. Mr. Bromage serves on the boards of MetroHartford Alliance, Connecticut Public Broadcasting and Junior Achievement of Southwest New England.
John J. Crawford is President of Strategem LLC, a New Haven, Connecticut based company which provides consulting services to the business and not-for-profit community on business and financial strategies. Mr. Crawford served as President, Chief Executive Officer and a director of Aristotle Corporation, a New Haven, Connecticut based education training company from October 1992 through December 2002. Mr. Crawford continued to serve on the Board of Directors of Aristotle Corporation until August 31, 2005. From 1994 until December 2000, he served as President and Chief Executive Officer of the South Central Connecticut Regional Water Authority, New Haven, Connecticut. Mr. Crawford is Lead Director, Chairman of the Nominating and Corporate Governance Committee, and a member of the Audit Committee and the Executive Committee.
Robert A. Finkenzeller is President of Eyelet Crafters, Inc., a Waterbury, Connecticut based company that manufactures deep drawn metal parts for the cosmetics, writing instrument and drapery hardware fields. Mr. Finkenzeller has held this position since 1990. Mr. Finkenzeller is a member of the Audit Committee and the Nominating and Corporate Governance Committee.
Roger A. Gelfenbien was the Managing Partner in Andersen Consultings (now Accenture) Hartford, Connecticut office from 1989 until his retirement in 1999. His experience with Andersen Consulting included participation on engagements for several State of Connecticut agencies, local governments, insurance companies and banks. He served as Chairman of the University of Connecticut Board of Trustees from July 1997 to June 2003 and participated in the development of UConn 2000, a major state-funded capital program with the purpose of revitalizing the University and its main campus. Mr. Gelfenbien is a member of the board of trustees of The Phoenix Edge Series Fund and USAllianz Variable Insurance Product Trust. Mr. Gelfenbien is a member of the Compensation Committee and the Nominating and Corporate Governance Committee.
C. Michael Jacobi is President of Stable House 1, LLC, a Middlebury, Connecticut based company engaged in real estate development. Mr. Jacobi served from June 2001 to May 2005 as President, Chief Executive Officer and a director of Katy Industries, Inc., a public company headquartered in Middlebury, Connecticut engaged in the design, manufacture and distribution of maintenance and electrical products. Mr. Jacobi is a certified public accountant. He is a member of the board of directors and chairman of the audit committee of Corrections Corporation of America (CCA), a publicly held company headquartered in Nashville, Tennessee engaged in the ownership and management of prisons for federal, state and local governments, is a member of the board of directors of Sturm Ruger & Co., Inc. (RGR), a publicly held company headquartered in Southport, Connecticut engaged in manufacturing and distribution of consumer products, and is a member of the board of directors of Kohlberg Capital Corporation (KCAP), a publicly held company headquartered in New York, New York specializing in equity and debt investments in middle market companies. He is Chairman of the Audit Committee and a member of the Executive Committee and the Risk Committee.
Laurence C. Morse is the co-founder and Chief Executive Officer of Fairview Capital Partners, Inc., in West Hartford, Connecticut, an investment management firm established in 1994 that oversees venture capital funds, some of which invest capital in venture capital partnerships and similar investment vehicles that provide capital primarily to minority-controlled companies. Mr. Morse is a director of the Princeton University Investment Company and is a former director and chairman of the National Association of Investment
Companies, a private, not-for-profit trade association that represents 52 private equity and specialty finance investment firms. He is Chairman of the Risk Committee and is a member of the Audit Committee and the Executive Committee.
Karen R. Osar was Executive Vice President and Chief Financial Officer of Chemtura Corporation, a specialty chemicals company headquartered in Middlebury, Connecticut from 2004 until her retirement in March 2007. From 1999 to June 2004, Ms. Osar served as Senior Vice President and Chief Financial Officer of Mead Westvaco Corporation and of Westvaco Corporation. She is a director of the Bank of New York Hamilton Mutual Funds, Innophos Holdings, Inc. (IPHS), a publicly held specialty chemicals company headquartered in Cranbury, New Jersey and Sappi Limited (SPP), a company engaged in the production of coated fine paper and chemical cellulose, headquartered in Johannesburg, South Africa. Ms. Osar is a member of the Compensation Committee and the Risk Committee.
James C. Smith is Chairman, Chief Executive Officer and a director of Webster and Webster Bank, having been elected Chief Executive Officer in 1987 and Chairman in 1995. Mr. Smith joined Webster Bank in 1975, and was elected President, Chief Operating Officer and a director of Webster Bank in 1982 and of Webster in 1986. Mr. Smith served as President of Webster and Webster Bank until 2000. Mr. Smith is a director of the Federal Reserve Bank of Boston and was a member of the Federal Advisory Council which advises the deliberations of the Federal Reserve Board of Governors until December 2007. He is a member of the executive committee of the Connecticut Bankers Association, co-chairman of the American Bankers Council and a former director of the Federal Home Loan Bank of Boston. He is a director of St. Marys Hospital and the Palace Theater, both of Waterbury, Connecticut, and was a director of MacDermid, Incorporated (MRD) until it was sold in June 2007. Mr. Smith is Chairman of the Executive Committee.
The Board of Directors recommends that shareholders vote FOR the election of all of its director nominees.
The business and affairs of Webster are managed under the direction of the Board of Directors. Members of the Board are kept informed of Websters business through discussions with the Chairman of the Board and Websters other executive officers, by reviewing materials provided to them and by participating in meetings and strategic planning sessions of the Board and its committees. The Board is also kept apprised by the Chairman of the Board and management of continuing educational programs on corporate governance and fiduciary duties and responsibilities. In addition, new directors of Webster participate in an orientation program which is designed to familiarize them with Websters business and operations, and with their duties as directors under applicable laws and regulations. Each member of the Board also serves as a director of Webster Bank.
Webster believes in the importance of sound and effective corporate governance. Over the years Webster has forged an explicit link between its corporate culture and corporate governance by identifying its core values, communicating them and living them every day. With uncompromising commitment to its core principles, Webster continues to add value for its customers, shareholders, employees and the communities it serves. The Board has adopted corporate governance practices and policies which the Board and senior management believe promote this philosophy.
Pursuant to the New York Stock Exchange (NYSE) listing standards, Webster is required to have a majority of independent directors on its Board of Directors. In addition, the Audit Committee, Compensation Committee and the Nominating and Corporate Governance Committee must be composed solely of independent directors. The NYSE listing standards define specific relationships that would disqualify a director from being independent and further require that for a director to qualify as independent, the board of directors must affirmatively determine that the director has no material relationship with the Corporation.
The Board of Directors, with the assistance of the Nominating and Corporate Governance Committee, conducted an evaluation of director independence, based primarily on a review of the responses of the directors and executive officers to questions regarding employment and compensation history, affiliations and family and other relationships, including those relationships described under Compensation Committee Interlocks and Insider Participation and Certain Relationships beginning on page 38 of this Proxy Statement, and on discussions with the Board of Directors.
As a result of this evaluation, the Board of Directors affirmatively determined that each of Messrs. Becker, Carpenter, Crawford, Finkenzeller, Gelfenbien, Jacobi, Morse and Ms. Osar is an independent director for purposes of Section 303A of the Listed Company Manual of the NYSE and applicable SEC rules and regulations. In connection with this evaluation, the Board considered that in addition to Webster providing lending and other financial services to directors, their immediate family members, and their affiliated organizations in the ordinary course of business, some directors and their affiliated entities provide services to Webster in the ordinary course of business. In particular, the Board considered the following relationships:
Mr. Smith and Mr. Bromage are not considered independent because they are executive officers of Webster and Webster Bank.
Executive Sessions of Independent Directors
In keeping with Websters Corporate Governance Policy, in 2007 the Board of Directors held 3 meetings that were limited to independent directors. Websters Corporate Governance Policy provides that the Board of Directors shall appoint an independent director to serve as the lead director of the Board of Directors for a one-year term, or until a successor is appointed. The lead director presides over the executive sessions of outside directors and assists and advises the Chairman of the Board. During fiscal year 2007, Mr. Crawford served as the lead director.
Board of Director and Committee Meetings
During 2007, Webster held 14 meetings of its Board of Directors. Each incumbent director attended at least 75 percent of the aggregate of (i) the total number of meetings held by the Board of Directors during the period that the individual served and (ii) the total number of meetings held by all committees of the Board on which the individual served during the period that the individual served.
Committees of the Board of Directors; Code of Business Conduct and Ethics and Corporate Governance Guidelines
The Board of Directors has established five standing committees. The standing committees are the Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee, the Executive Committee and the Risk Committee. The Board of Directors has adopted a charter for each of these committees, as well as corporate governance guidelines that address the make-up and functioning of the Board of Directors and qualification guidelines for board members. The Board of Directors has also adopted a code of business conduct and ethics (the Code of Conduct) that applies to all employees, officers and directors. Each employee, officer and director participates in an annual training session that focuses on topics covered by our code of business conduct and ethics. The training reinforces our core values and our commitment to full compliance with applicable laws and regulations. You can find links to these materials on the Corporations website at: www.wbst.com.
You can also obtain a printed copy of any of the materials referred to above, without charge, by contacting us at the following address:
Webster Financial Corporation
145 Bank Street
Waterbury, Connecticut 06702
Attn: Harriet Munrett Wolfe, Esq.
Executive Vice President, General Counsel and Secretary
The Board of Directors has determined that all of the Directors who serve on the Audit, Compensation, and Nominating and Corporate Governance committees are independent for purposes of Section 303A of the Listed Company Manual of the NYSE. In addition, all of the Directors who serve on the Risk Committee are independent.
The Board of Directors has appointed an Audit Committee that oversees the Corporations financial reporting process, the system of internal financial and accounting controls, the audit process, and compliance with applicable laws and regulations. The Audit Committee reviews the Corporations annual financial statements, including managements discussion and analysis, and regulatory examination findings. The Audit Committee recommends the appointment of an independent registered public accounting firm and is responsible for the oversight of such firm. A copy of the Audit Committees charter is available on the Corporations website at: www.wbst.com. During 2007, the Audit Committee held 5 meetings. The members of the Audit Committee currently are Messrs. Jacobi (Chairman), Crawford, Finkenzeller and Morse. Each of the members of the Audit Committee meets the independence requirements of the rules of the NYSE and applicable rules and regulations of the SEC. The Board of Directors has determined that each of the members of the Audit Committee is financially literate and that Messrs. Crawford and Jacobi each qualify as an audit committee financial expert, as that term is defined in Item 407(d)(5) of Regulation S-K.
The Board of Directors has appointed a Compensation Committee. Each of the members of the Compensation Committee meets the independence requirements of the rules of the NYSE, and also serves as the Compensation Committee of the Corporations subsidiary, Webster Bank. The members of the Compensation Committee currently are Messrs. Becker (Chairman), Carpenter, Gelfenbien and Ms. Osar. A copy of the Compensation Committees charter is available on the Corporations website at: www.wbst.com.
Pursuant to the Compensation Committees charter, among other responsibilities, the Committee is charged with annually reviewing and making recommendations to the non-employee members of the Board of Directors with respect to the following elements of compensation paid to the CEO and other executive officers: (i) annual base salary, (ii) annual bonus arrangements, (iii) any long-term incentive compensation, (iv) any employment agreements, severance arrangements, and change in control and similar agreements/provisions, and, any amendments, supplements or waivers to the foregoing agreements, and (v) any perquisites, special or supplemental benefits.
All recommendations of the Committee regarding the compensation of executive officers are subject to approval by the non-employee members of the Board of Directors, which has ultimate responsibility over such matters, except that the Committee has the authority to grant and administer incentive awards to eligible individuals other than CEO, COO or CFO and to approve the compensation offered to prospective and existing employees for or in executive officer positions, other than CEO, COO or CFO, including base salary, annual bonus, long-term incentive bonus and employee benefits, without such compensation offer being subject to approval by the non-employee members of the Board of Directors.
During 2007, the Compensation Committee held 4 meetings. The head of Human Resources serves as secretary to the Committee and provides reports at each meeting on Websters employment policies and practices and provides recommendations to the Committee regarding the amount and form of executive compensation and benefits. Compensation Committee meetings are attended by Websters CEO, COO, and CFO; however, they do not participate in portions of meetings where their own compensation and benefits are discussed. For a description of the role of Websters CEO in determining or recommending the amount of compensation paid to our named executive officers (as set forth under Executive Compensation and Other Information below) during 2007, see Compensation Discussion and Analysis below.
In carrying out its responsibilities, the Compensation Committee engages an outside compensation consultant to provide an independent analysis of Websters executive compensation program and practices and to assist the Committee in making recommendations. The Committee has the authority to hire and fire the consultant and determine the nature and scope of the consultants assignments. During 2007, the Committee engaged Hewitt Associates as outside compensation consultant.
The Compensation Committee engaged Hewitt to offer market perspectives on annual pay and performance reviews, current executive compensation trends and compensation programs currently in place at Webster. Hewitt also reviewed the Committees decision-making process, Websters executive talent and business strategies, and the competitive landscape. At the direction of the Compensation Committee, Hewitt worked with Websters management to develop recommendations for the Committee proposals regarding executive compensation programs and arrangements, in particular the current Annual Incentive Program. The Committee weighs the consultants perspective as part of its decision making process, and in turn may ask the consultant to communicate the Committees preferences, perspectives, and decision-making parameters to management. The Committee communicates compensation decisions directly to management. Hewitt did not determine the amount or form of compensation paid to Websters executive officers or directors during 2007.
The Board of Directors has appointed an Executive Committee that has responsibility for overseeing managements monitoring of security issues. It also serves as the loan committee and the exploratory committee for mergers and acquisitions. During 2007, the Executive Committee held 3 meetings. The members of the Executive Committee are Messrs. Smith (Chairman), Becker, Crawford, Jacobi and Morse.
Nominating and Corporate Governance Committee
The Board of Directors has appointed a Nominating and Corporate Governance Committee that has overall responsibility for recommending corporate governance process and board operations for the Corporation. The Nominating and Corporate Governance Committee identifies director candidates, reviews the qualifications and experience of each person considered as a nominee for election or reelection as a director, and recommends director nominees to fill vacancies on the Board and for approval by the Board of Directors and the shareholders. A copy of the Nominating and Corporate Governance Committees charter is available on the Corporations website at: www.wbst.com. During 2007, the Nominating and Corporate Governance Committee held 3 meetings. The members of the Nominating and Corporate Governance Committee are Messrs. Crawford (Chairman), Becker, Finkenzeller and Gelfenbien.
The Board of Directors has appointed a Risk Committee whose primary function is to assist the Board in fulfilling its oversight responsibilities regarding the Corporations enterprise risk management, receiving information regarding the Corporations policies, procedures and practices relating to risk, and discussing material regulatory issues, compliance matters, and emerging risks to the Corporation. During 2007, the Risk Committee held 11 meetings. The members of the Risk Committee are Messrs. Morse (Chairman), Carpenter, Jacobi, and Ms. Osar.
Director Qualifications and Nominations
The Board of Directors believes that it should be composed of directors with diverse experience in business and in areas that are relevant to the Corporation, and that directors should, at a minimum, possess the highest personal and professional ethics, integrity, and values, and be committed to representing the long-term interests of the shareholders. Directors should also have an objective perspective and practical wisdom, and should be willing and able to devote the required amount of time to Websters business.
When considering candidates for the Board of Directors, the Nominating and Corporate Governance Committee takes into account a number of factors, including the following:
When seeking candidates for director, the Nominating and Corporate Governance Committee may solicit suggestions from incumbent directors, management or others, including third party search firms. The Committee will review the qualifications and experience of each candidate. If the Committee believes a candidate would be a valuable addition to the Board, it will recommend to the full Board that candidates election.
Websters Bylaws also permit shareholders eligible to vote at the Annual Meeting to make nominations for directors, but only if such nominations are made pursuant to timely notice in writing to the Secretary of Webster. To be timely, notice must be delivered to, or mailed to and received at, the principal executive offices of Webster not less than 30 days nor more than 90 days prior to the date of the meeting, provided that at least 45 days notice or prior public disclosure of the date of the Annual Meeting is given or made to shareholders. If less than 45 days notice or prior public disclosure of the date of the Annual Meeting is given or made to shareholders, notice by the shareholder to be timely must be received by Webster not later than the close of business on the 15th day following the day on which such notice of the date of the Annual Meeting was mailed or such public disclosure was made. Public disclosure of the date of the Annual Meeting was made by the issuance of a press release on February 5, 2008 and by filing a Current Report on Form 8-K under the Securities Exchange Act of 1934, as amended, with the Securities and Exchange Commission on February 5, 2008. The Nominating and Corporate Governance Committee will consider candidates for director suggested by shareholders applying the criteria for candidates described above and considering the additional information required by Article III, Section 13 of Websters Bylaws, which must be set forth in a shareholders notice of nomination. Section 13 of Websters Bylaws requires that the notice include: (a) as to each person whom the shareholder proposes to nominate for election or reelection as a director, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of Webster which are beneficially owned by such person, and (iv) any other information relating to such person that is required to be disclosed in solicitations or proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including without limitation such persons written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (b) as to the shareholder giving notice (i) the name and address, as they appear on Websters books, of such shareholder and (ii) the class and number of shares of Webster which are beneficially owned by such shareholder. In considering any nominees for directors recommended by a shareholder, the Nominating and Corporate Governance Committee considers, among other things, the same factors set forth above.
Compensation of Directors
The following table summarizes the compensation paid to Websters non-employee directors during 2007. Employee directors of Webster receive no additional compensation for serving as directors or committee members of Webster or its subsidiaries. Beyond these and other standard arrangements described below, no other compensation was paid to any such director.
Webster uses a combination of cash, restricted stock and stock options to attract and retain qualified candidates to serve on the Board. Webster targets director compensation to be at the median for its peer group (as described in Compensation Discussion and Analysis below), with the opportunity to earn significantly more based on Websters total shareholder return. Stock ownership guidelines have also been established for directors to closely align directors interests with those of Websters shareholders.
During 2007, each non-employee director of Webster received an annual retainer valued at $32,000, $7,000 in cash plus 522 shares of Webster Common Stock pursuant to the 2001 Directors Retainer Fees Plan, which provides for the payment of annual retainer fees to non-employee directors in shares of Common Stock (the Fees Plan). Under the Fees Plan, each non-employee director is granted restricted shares of Common Stock for the equity portion (currently $25,000) of their annual retainer determined by the average four quarter value of our Common Stock as of the grant date. The average four quarter value is based on the average of the closing prices of Common Stock at the end of the four calendar quarters preceding the grant date, which is the date of each annual meeting of shareholders. Shares of Common Stock granted under the Fees Plan are subject to vesting requirements and other substantial risks of forfeiture. In addition, non-employee directors of Webster received non-qualified stock options to purchase 4,971 shares of Webster Common Stock.
In addition, except as set forth below, each non-employee director received $1,500 for each Webster or Webster Bank Board meeting attended, $1,250 for each committee meeting attended, and $750 for each telephonic Webster or Webster Bank Board meeting called by either Webster or Webster Bank, with the exception of the Risk Committee whose members received $1,250 for telephonic meetings. Each non-employee director of both Webster and Webster Bank received a total of $2,000 for separate board meetings of Webster and Webster Bank that were held on the same day. Webster also reimburses directors for reasonable travel expenses incurred in connection with attending off-site board meetings (including the travel expenses of spouses if they are specifically invited to attend).
In 2007, the Lead Director received an annual retainer of $20,000, which includes his fee as Chairman of the Nominating and Corporate Governance Committee. The Chairman of the Audit Committee received an annual retainer of $15,000, and the Chairman of the Compensation Committee and the Chairman of the Risk Committee received annual retainers of $7,500.
Directors are eligible to participate in Webster Banks nonqualified deferred compensation plan. Directors may elect to defer up to 100% of their cash directors fees. Deferral accounts are indexed to net rates of return in mutual fund portfolios chosen by each Director. Deferred amounts are credited by Fidelity Investments to accounts for each Director. Such accounts, plus accrued interest, are payable upon death, disability, or termination of service as a Director or a specified date that is at least five years from the year of deferral (as elected by the Director at the time of deferral). Distribution elections may be paid in a lump sum or in ten annual installments, at the election of the Director, except in the case of disability, where lump sum distribution is required.
Our stock ownership guidelines require non-employee directors to own Webster Common Stock with a market value equal to at least $100,000. Non-employee directors who do not meet the guidelines agree to hold all long-term incentives which include vested restricted stock and exercised stock options (net of exercise price and taxes) until they achieve the required ownership threshold of Webster Common Stock.
Communications with Directors
The Corporations shareholders and other interested persons who want to communicate with the Board of Directors, any individual Director, the Lead Director, the non-management Directors as a group or any other group of Directors, can write to:
[Name of Director or Directors]
c/o Lead Director of the Board of Directors
Webster Financial Corporation
P.O. Box 1074
170 Orange Street
New Haven, Connecticut 06504
All communications received (except for communications that are primarily commercial in nature or relate to an improper or irrelevant topic) will be forwarded to the intended recipient(s) or the full Board, as appropriate.
Director Attendance at Annual Meetings
Webster typically schedules a meeting of the Board of Directors in conjunction with the annual meeting and expects that the Board of Directors will attend the annual meeting, absent a valid reason, such as a previously scheduled conflict. Last year all of the individuals then serving as directors, except for Mr. Gelfenbien, attended the annual meeting.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Named Executive Officers of Webster Financial Corporation
The following table sets forth information regarding the named executive officers of Webster Financial Corporation at December 31, 2007.
Provided below is biographical information for each of Websters named executive officers, other than Messrs. Bromage and Smith. For information regarding Messrs. Bromage and Smith, see Election of Directors Information as to Nominees and Other Directors.
Gerald P. Plush is Senior Executive Vice President and Chief Financial Officer of Webster and Webster Bank. Mr. Plush joined Webster in July 2006 and was promoted to Senior Executive Vice President in July 2007. Prior to joining Webster, Mr. Plush was employed at MBNA America in Wilmington, Delaware. In his most recent position with MBNA, he was Senior Executive Vice President and Managing Director of Corporate Development and Acquisitions. Prior to this position, Mr. Plush was Senior Executive Vice President and Chief Financial Officer of MBNAs North American Operations, and prior to that he was Senior Executive Vice President and Chief Financial Officer of U.S. Credit Card. Mr. Plush serves on the board of trustees of Upland Country Day School in Kennett Square, Pennsylvania.
Joseph J. Savage is Executive Vice President of Webster and Executive Vice President, Commercial Banking for Webster Bank. He joined Webster in April 2002. Prior to joining Webster, Mr. Savage was Executive Vice President of the Communications and Energy Banking Group for CoBank in Denver, Colorado from 1996 to April 2002. Mr. Savage is a director of the Connecticut Business & Industry Association.
Scott M. McBrair is Executive Vice President of Webster and Executive Vice President, Retail Banking of Webster Bank. Prior to joining Webster in April 2005, Mr. McBrair was employed at Chicagos Bank One Corporation, which was acquired by JP Morgan Chase in 2004. In his most recent position with Chase, he was Executive Vice President and Region Executive and served as National Director-New Branches.
Compensation Committee Report
The Compensation Committee met with management to review and discuss the Compensation Discussion and Analysis disclosures that follow. Based on such review and discussion, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference in the Corporations Form 10-K for its 2007 fiscal year, and the Board has approved that recommendation.
Joel S. Becker (Chairman)
George T. Carpenter
Roger A. Gelfenbien
Karen R. Osar
Compensation Discussion and Analysis
Objectives of Compensation Program
Websters compensation program for its named executive officers is designed to accomplish three principal objectives. Webster believes these objectives provide a strong link between the named executive officers total earnings opportunity and Websters short and long-term performance. These objectives include:
Competitive Peer Group Review
Websters Compensation Committee annually reviews and makes recommendations to the non-employee members of the Board of Directors on each element of compensation paid to the named executive officers. In formulating these recommendations, the total compensation for each named executive officer is periodically reviewed against that of a group of peer companies. These peer companies are identical to the investor peer group referenced in the investor presentations to assess Websters relative performance. The primary reason for choosing this peer group is that it reflects a commercial banking business model comparable to Webster.
The peer group consists of 30 publicly traded commercial banks with assets ranging from $10 billion to $42 billion. At the time of the Committees annual compensation review, in June 2007, the median assets of the peer group were $14.4 billion versus Webster assets of $17.1 billion. The companies in the peer group are:
The Compensation Committee supplemented the compensation data from the peer group with survey data for the 2007 annual review of compensation programs. The supplemental data included information from comparably sized companies in the finance/banking industry and came from the following surveys:
The Compensation Committee supplemented its peer group review with the additional survey data as the information publicly available in the proxy statements of the peer group companies did not always provide a good comparable for executive positions other than Chief Executive Officer and Chief Financial Officer. The Compensation Committee also reviewed the compensation practices of two additional banks that have either a similar business model as Webster and/or operate in the northeast region, but are not used in the peer group due to size or charter. These companies are Peoples United Bank, and NewAlliance Bancshares. Data for these companies was presented as additional reference points only.
The Compensation Committee did not seek to maintain any direct relationship between the compensation paid to the named executive officers and the peer group data or the survey results. While the Committee reviewed data covering both total compensation and the individual components of compensation, the Committee focused on total compensation in making decisions. Consistent with the objectives of Websters compensation program, the Committee used the data solely as a guideline for the Committees analysis rather than strict rules for establishing compensation. The Compensation Committee reviewed the total compensation of the named executive officers relative to the total compensation of the peer group and survey data, with individual variations based on job scope, tenure, retention risk, and other factors relevant to the Committee. As described in detail below, a large portion of pay is tied to financial performance and other goals believed to be tied to increasing shareholder value over the long term. Consequently, actual compensation received could be different than targeted compensation.
Elements of Compensation
The Committee emphasizes performance-based compensation. Total direct compensation paid to the named executive officers in fiscal year 2007 consisted of base salary, annual cash incentive, and long-term equity incentives (stock options and performance shares). Each of these elements has a separate purpose and may have a different relative value to the total. However, as discussed below, a significant portion of the total direct compensation package depends on Websters financial success and total shareholder return. For 2007, the mix of base salary, target annual cash incentive, and target long-term equity incentives is shown below:
In addition to these elements, the named executive officers also participate in Websters retirement plans and limited perquisites.
Base Salary. Webster believes base salaries should serve the dual purpose of attracting and retaining the named executive officers as well as guaranteeing them a competitive level of base compensation. The named executive officers, other than Mr. Plush, received merit increases in 2007 representing 3.5% of base salary. This merit increase amount was determined by reviewing market practices. The officers received merit increases to maintain their position relative to market. Mr. Plush received a salary increase of 5% as part of the terms negotiated in his 2006 employment offer.
Annual Incentive Compensation. The non-employee members of the Board of Directors each year implement an annual incentive compensation plan for the named executive officers. The annual incentive plan for Mr. Smith, Mr. Bromage and Mr. Plush, is designed to be tax deductible under IRS Code Section 162(m) through Websters Qualified Performance-Based Compensation Plan. This plan provides bonus opportunities based on Websters strategic and financial performance and progress. In no event may any individuals annual incentive exceed 2% of the companys income before taxes.
At the February meeting each year, the Compensation Committee sets a target annual cash incentive compensation expressed as a percentage of base salary. The Committee then sets performance thresholds, targets, and maximums based on financial and non-financial objectives for Webster. After the end of the year, the Compensation Committee evaluates the extent to which the objectives have been achieved. This evaluation results in a percentage rating for achievement of the performance ranging from 0% to 200%. This percentage is applied to the corporate portion of the target annual incentive compensation. Below threshold performance results in no bonus being paid for the portion of the incentive tied to corporate results.
For 2007, the annual cash incentive targets for the named executive officers are shown below:
For Mr. Smith, Mr. Bromage and Mr. Plush, the financial objectives are based 100% on corporate results, because they have the greatest ability to influence the financial results of the company overall.
For Mr. Savage and Mr. McBrair, the financial objectives are based 30% on corporate results, 50% on their respective business financial performance, and 20% on performance against their individual goals. This weighting aligns Mr. Savage and Mr. McBrair with financial results of the company while being rewarded primarily for the performance of the business units for which they have responsibility and greatest ability to impact results.
Determining the Corporate Performance Payout
To determine Websters corporate financial performance in 2007, the Committee set goals for net income per share (adjusted to exclude all non-recurring items). This performance measure was selected because the consistent year-to-year achievement of this goal is believed to result in long-term shareholder value. In setting the following goals for 2007, the Compensation Committee considered the prior years performance and the significant challenges of the 2007 financial plan:
Incentive awards for performance between 90% and 110% of plan are interpolated between 50% and 200% of the incentive target. No corporate incentive is paid if performance is below threshold.
For 2007, Webster did not achieve the threshold adjusted net income per share target, and thus no annual incentives would have been paid for corporate performance under the plan to the named executive officers (as well as other executive officers of the company). Webster failed to achieve plan in 2007 due primarily to credit costs and margin pressures. Webster also took charges related to the sale or closure of business units. The credit costs resulted from projected losses in a narrow set of businesses related to indirect, out-of-market construction lending and home equity lending. However, in reviewing Websters progress with respect to certain of its strategic and financial objectives during 2007, the Compensation Committee noted the following factors:
Based on its review of these achievements, and the Committees belief that the strategic accomplishments during 2007 warranted some payout, the Compensation Committee created a special pool equal to 70% of the original target for corporate performance for each named executive officer, other than Messrs. Smith and Bromage. Accordingly, Mr. Plush received a bonus equivalent to 70% of his annual incentive target, and Messrs. Savage and McBrair received a bonus equivalent to 70% of the 30% of each of their annual incentive targets for the portion related to corporate performance. In reviewing each of the achievements discussed above, the Committee did not place any particular weight or emphasis on the individual achievements mentioned, but instead relied on its overall view of Websters progress in these areas and its business judgment in determining to exercise its discretion and award the annual incentive payout.
Given that Mr. Smith is ultimately responsible for corporate performance and based in part on his recommendation that he be excluded from consideration for incentive compensation, the Committee determined not to award a bonus to Mr. Smith despite the strategic accomplishments noted previously.
Given that Mr. Bromage had overall responsibility for the business units which incurred credit costs that resulted from projected losses in the companys indirect out of market residential construction and home equity lending portfolios, the Committee determined not to award a bonus to Mr. Bromage despite the strategic accomplishments noted previously.
Determining the Non-Corporate Performance Payout
To determine the portion of the incentive associated with the non-corporate performance for Messrs. Savage and McBrair, the business financial measure is called direct contribution, which is a pre-tax profitability measurement of revenues and direct expenses, funds transfer pricing and economic loss. Funds transfer pricing represents the allocated charges and credits related to Websters funding of the business units balance sheets. Economic loss represents the allocated charges related to the credit risk and loss in the event of default of the business units loan portfolios, in lieu of any Generally Accepted Accounting Principles (GAAP) loss provision that may have been charged. Webster considers the direct contribution goals to be a confidential, internally-derived performance measure. Webster sets these goals with the expectation that they can only be achieved through significant results. In order to provide context regarding the results needed in order for payout to exceed target under the business financial measure, the Commercial Bank and the Retail Bank have not exceeded target-level direct contribution for the past four consecutive fiscal years.
For the portion of his annual incentive related to the performance of his business line, Mr. Savage achieved 97% of the Commercial Banking direct contribution goal, which resulted in 85% of target payout for the portion of the annual incentive associated with his business financial performance. Mr. Savage received 76% of target for his achievement against his individual objectives for 2007. These objectives included: achieving new loan targets, meeting asset quality targets and enhancing the commercial sales staff. He received less than target because his business lines did not fully meet their compliance objectives.
For the portion of his annual incentive related to the performance of his business line, Mr. McBrair achieved 97% of the Retail Banking direct contribution goal, which resulted in 85% of target payout for the portion of the annual incentive associated with his business financial performance. Mr. McBrair received 100% of target for his achievement against his individual objectives for 2007. These objectives included: achieving superior customer sales targets, strengthening the retail banking leadership team, developing and advancing a bank-wide sales program and meeting regulatory compliance targets.
In addition, for each of Messrs. Savage and McBrair, the Committee determined to reduce by 10% the non-corporate portion of the annual incentives to reflect less than satisfactory company-wide results.
Based on the total performance of Webster, business units, and individual objectives, and in particular the strategic and financial objectives above, using the described performance measures, the Compensation Committee awarded annual cash incentives as follows:
Long-Term Incentive Compensation. Webster grants long-term equity awards to emphasize long-term results and align the named executive officers and the shareholders interests. Each named executive officers long-term incentive compensation has a targeted value ranging from 75% to 175% of base salary, as shown below:
Webster targets a long-term incentive mix of 50% stock options and 50% performance shares. This mix is designed to encourage long-term value creation for shareholders. It is also a powerful employee retention tool and it encourages stock ownership.
Stock Options. Webster believes stock options are inherently performance-based, meaning they increase in value as the companys stock price increases. Thus, options support its objective of providing performance-based compensation while at the same time providing an opportunity for its named executive officers to acquire or increase a proprietary interest in Webster. The Compensation Committee does not consider the number of options outstanding and held by the named executive officer when determining the options to be awarded in the current year. The number of options is determined as 50% of the long-term equity target above divided by the Black-Scholes value of the average price of Webster stock for the 10-day period prior to the grant date (for the 2007 grant, $7.25). All options granted to the named executive officers are subject to a four-year service-based vesting requirement, with 25% vesting on each anniversary of the grant.
Webster has an established practice of awarding stock options annually at a meeting date determined at the beginning of the year. It has been Websters long-standing practice to grant equity awards at the December meeting of the Board of Directors. The grant date of any annual equity award is the date of the meeting at which the award was approved by the Compensation Committee or Board of Directors, as applicable. In accordance with the terms of the Amended and Restated 1992 Stock Option Plan, the grant price is the closing price of Websters common stock on the NYSE on the trading day preceding the meeting. The executive officers, including the named executive officers, do not have any role in choosing the grant date for stock option awards or any other terms of the stock option awards.
Performance Shares. The 50% portion of performance shares awarded to the named executive officers is based on performance criteria over a three-year performance period. This allows Webster to reinforce its primary objective of rewarding the named executive officers for superior performance. It also allows this equity grant to qualify as deductible compensation under Section 162(m). The number of performance shares is determined as 50% of the long-term equity target above divided by the average price of Webster stock for the 10-day period prior to the grant date (for the 2007 grant, $33.16).
Performance shares were awarded to Messrs. Smith, Bromage and Plush in the past, but now all of the named executive officers are on the same performance share plan. These performance shares are tied to Websters total shareholder return (defined as share price appreciation from the beginning of the performance period to the end of the performance period, plus the total dividends paid on the common stock during the period) versus the companies in the KBW Regional Banking Index (KRX). The total shareholder return measure was selected because it best reflects the value Webster provides to the shareholders. This group of companies was
chosen because it represents a stable mix of the size and type of financial institutions that best compare with Webster. Also, a list of these companies is readily available in a published index and it represents a large enough group to be relevant over the three-year measurement period.
At the December 2007 meetings, the Board of Directors granted the performance share awards and the Compensation Committee approved the performance measures. For the 2007 grant, based on performance for the three-year performance period starting January 1, 2008, the number of shares to become vested will be determined by the following performance criteria:
If the minimum threshold performance level is not achieved, the award will be forfeited in its entirety. The Compensation Committee will interpolate the actual number of shares earned if the actual performance achieved is between the threshold and superior performance levels. For example, performance at the 47th percentile could result in an award of 90% of target.
In an earlier program that was adopted in 2004, which included performance shares contingent upon achievement of 3-year EPS growth and granted only to Mr. Smith in the targeted amount of $405,100, the threshold performance was not achieved and Mr. Smith forfeited the receipt of the shares in 2007.
Executive Stock Ownership. Webster believes stock ownership by management is beneficial in aligning the interests of management and shareholders. Executive Stock Ownership Guidelines are established to enhance shareholder value and focus each executives attention on the long-term success of the company.
Webster adopted formal stock ownership guidelines for all of the executive officers, including the named executive officers, in 2004 as shown below:
Once achieved, ownership of the guideline amount must be maintained for as long as the executive is subject to the stock ownership guidelines. Even if stock ownership guidelines have been achieved, named executive officers are required to continue to hold all net vested restricted stock and performance shares and net shares of common stock delivered after exercising stock options for a minimum of one year. Named executive officers who do not meet the guidelines further agree to hold common stock received through long-term incentive awards until they achieve their respective ownership thresholds. As of December 31, 2007, Mr. Smith and Mr. Bromage have met the stock ownership guidelines. The Compensation Committee believes the other named executive officers are making satisfactory progress toward these goals.
Pension Plan. Webster Bank maintains a defined benefit pension plan for eligible employees, including the named executive officers. The plan was closed to all employees hired after December 31, 2006. Webster stopped accruals under the plan for all employees hired before such date, including accruals under the nonqualified supplemental retirement plan (as discussed below) available to the named executive officers, on December 31, 2007.
In place of the Pension Plan, Webster offers an enhanced defined contribution 401(k) plan as of January 1, 2008. After a careful review of the retirement plans, competitive practices and national trends, the Board of Directors decided to strategically shift the focus to a single defined contribution retirement plan that is more reflective of the retirement practices being implemented across the nation and more suited to attract and retain a qualified, motivated workforce in todays mobile economy. In addition, the change in retirement plans is intended to stabilize and clarify the funding costs associated with Websters retirement plans under a defined contribution plan and away from the financial volatility inherent in the defined benefit pension plan.
401(k) Plan. As mentioned above, Webster Bank maintains an enhanced defined contribution 401(k) plan for eligible employees, including the named executive officers. According to the terms of the plan, highly compensated employees, which includes each of the named executive officers, were limited to contributing no more than 9% of their pay up to statutory limits ($15,500 in 2007). The Bank matches the employees contributions on a dollar for dollar basis for the first 2% of pay the employee contributes, and fifty cents on the dollar for the next 6% of pay the employee contributes. In conjunction with the freezing of accruals under the pension plan, Webster added transition credits to the 401(k) plan. These credits range from 1% to 6% of pay for those employees hired before January 1, 2007 and age 35 or older on January 1, 2008. A three year vesting schedule applies to matching and transition credit contributions. Employees who are age 50 or older by the last day of the year may contribute an additional $5,000 to the plan.
Supplemental Retirement Plan. Prior to freezing the pension plan, Webster Bank maintained a nonqualified Supplemental Retirement Plan for certain executives, including the named executive officers, who were also participants in the Pension Plan. The purpose of the Plan was to provide these individuals with supplemental retirement benefits equal to the benefits that are not otherwise available due to the statutory compensation and deferral limitations. In place of the pension restoration formula in the Supplemental Plan, Mr. Smith and Mr. Bromage receive a replacement benefit at age 65 equal to 60% of their highest five year average compensation, reduced by benefits from the Pension Plan, Social Security, and prior employer pension plans. To attract and retain talent, this provided the named executive officers with a market-competitive benefit that they could get elsewhere. As discussed above, supplemental pension benefits were frozen as of December 31, 2007. Thus, service and compensation after this date will not be used in calculating a named executive officers benefit from this Plan.
Non-Qualified Deferred Compensation Plan. The executive officers, including each of the named executive officers are eligible to participate in the Webster Bank non-qualified deferred compensation plan. The plan allows certain employees at the senior vice president level and above to defer a portion of their compensation because they face statutory limits under the qualified plan. This is a cost-effective method of offering a market-competitive benefit to the named executive officers.
In addition, the Non-Qualified Deferred Compensation plan provides supplemental 401(k) matching contributions. This plan provides each named executive officer, as well as other executive vice presidents, with an annual supplemental matching contribution equal to the matching contribution that would have been received by the officer in the qualified 401(k) plan if there were no IRS compensation or deferral limits, less the maximum matching contribution actually received.
Beginning January 1, 2008, the Non-Qualified Deferred Compensation Plan will provide enhanced benefits replicating benefits under the 401(k) Plan without regard to contribution limits. In addition, Mr. Smith and Mr. Bromage will receive, beginning in 2008, an additional supplemental contribution equal to 25.5% of compensation and 45.4% of compensation, respectively. Mr. Plush will receive, beginning in 2007, an additional supplemental contribution equal to 10% of compensation. These contributions continue through each executives normal retirement age (65). The purpose of the additional supplemental contributions is to reduce the negative impact of freezing the supplemental retirement plan benefits.
Other Executive Benefits. Webster offers a limited number of benefits to the named executive officers and other executives in addition to the broad-based employee benefits program. Each benefit supports a specific objective, but falls within the overall purpose of recognizing leadership responsibility and contributions to the company goals. Management regularly reviews the benefits with the Compensation Committee for consistency with our organizational culture and market practices. These benefits are described in footnote 5 following the Summary Compensation Table.
Post-Termination Arrangements. Websters change of control practices are designed to retain the named executive officers during rumored and actual change in control activity. During these times, continuity is a key factor in preserving the value of the business. Webster also provides other termination benefits designed to facilitate changes in key executives as needed. The amounts payable, triggering events and other terms of Websters change in control and other termination arrangements are set at the time of hiring by the Committee generally based on company policy and competitive market information. These arrangements are identical for all of the named executive officers. Because these arrangements are consistent across the named executive officers, the Committee does not generally consider these post-termination arrangements when making decisions relating to the other elements of compensation discussed above.
In the event of a change in control, severance benefits are provided to the named executive officers only upon qualified termination. This allows the named executive officers to evaluate potential changes in control and transition the change in control with greater impartiality. In the event of change in control, the named executive officers immediately vest in their outstanding equity. This encourages the executives to support a successful change in control, while easing the administrative burden of converting outstanding awards to the new company stock.
For a detailed description of these agreements and the potential amounts that Webster may be obligated to pay in the event payments are triggered, see Potential Payments on Termination or Change in Control below.
Policy on Internal Revenue Code Section 162(m)
Webster intends for all incentive compensation paid to the named executive officers to be fully deductible for federal income tax purposes. Section 162(m) of the Code disallows publicly traded companies from receiving a tax deduction on compensation paid to executive officers in excess of $1 million unless, among other things, the compensation meets the requirements for performance-based compensation. In structuring the compensation programs and in determining executive compensation, the Committee takes into consideration the deductibility limit for compensation and the performance-based requirements of Section 162(m).
To reinforce this objective, the Committee approved performance shares in lieu of service-based restricted stock for the named executive officers so that all of the equity compensation may qualify as deductible compensation under Section 162(m). With respect to prior grants of service-based restricted stock granted to Messrs. Smith and Bromage, each officer has deferred, for so long as they are employed by Webster, receipt of any shares that would cause them to exceed the $1 million limit under Section 162(m). These are the only executives impacted by the compensation limit.
COMPENSATION OF EXECUTIVE OFFICERS
The following tables contain certain compensation information for the Chief Executive Officer, Chief Financial Officer and the three other most highly compensated executive officers who were serving as executive officers on December 31, 2007 (the named executive officers):
Summary Compensation Table
Salary, bonus, incentive payments and other compensation amounts to Websters named executive officers are summarized in the following table. Some of the amounts below represent the opportunity to earn future compensation under performance-based compensation incentives that may be forfeited based on future performance vesting. As a result of mixing compensation paid and contingent compensation, the total shown in the Summary Compensation Table includes amounts that the named executives may never receive.
Grants of Plan-Based Awards
The following table sets forth all non-equity incentive plan and equity incentive plan awards made to the named executive officers during the fiscal year ended December 31, 2007
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth outstanding option awards and unvested stock awards held by Websters named executive officers as of December 31, 2007.
Option Exercises and Stock Vested
The following table sets forth information with respect to each of the named executive officers exercise of stock options and the vesting of stock during the fiscal year ended December 31, 2007.
The following table shows the present value of accumulated benefits payable to each of the named executive officers, including the number of years of service credited to each such named executive officer, under both the Pension Plan and the Supplemental Retirement Plan as of December 31, 2007. The accumulated benefit value is based upon the benefit that is payable at the executives Normal Retirement Age (65) and payable in the normal annuity form (life annuity with no death benefit).
Webster Bank maintains the Pension Plan for eligible employees of Webster Bank and affiliated companies that have adopted the Plan. The Pension Plan is a qualified plan under the Internal Revenue Code of 1986, as amended (the Code), and complies with the requirements of the Employee Retirement Income Security Act of 1974, as amended. All employees hired before January 1, 2007 are eligible to participate in the Pension Plan upon attaining age 21 and completing one year of service. As a result of an amendment adopted by the Board of Directors in 2006, employees hired, or rehired, after December 31, 2006 are not eligible to join the Pension Plan.
Benefits under the Pension Plan are funded solely by contributions made by Webster Bank. Under the Pension Plans benefit formula, a participants monthly normal retirement benefit will equal the sum of: (a) his or her accrued benefit as of December 31, 1986 (adjusted through August 31, 1996 to reflect certain future increases in compensation), plus (b) the sum of 2% of the participants monthly compensation for each year of credited service beginning on or after January 1, 1987 through August 31, 2004, plus (c) the sum of 1.25% of the participants monthly compensation if the participant has less than 10 years of credited service at the beginning of the year, or 1.50% of the participants monthly compensation if the participant has 10 or more years of credited service at the beginning of the year, for each year of credited service beginning on or after September 1, 2004. In general, benefits may not be based on more than 30 years of credited service. The normal form of benefit is a life annuity for the participants lifetime. A Pension Plan participant becomes 100% vested in the benefits under the Pension Plan upon completion of five years of service. Benefit payments to a participant or beneficiary may commence upon a participants early retirement date (age
55), normal retirement date (age 65), deferred retirement date or death. Benefits payable at early retirement date are reduced 1/15th each year for the first 5 years and 1/30th each year for the next 5 years before normal retirement date. Messrs. Smith, Bromage and Savage are eligible for early retirement benefits. Participants may elect to receive their benefits in one of several optional forms, including a lump sum or periodic payments during the participants lifetime or during the lifetime of the participant and his or her surviving spouse or designated beneficiary. The lump sum option has been eliminated for benefits earned after January 26, 1998.
The 2006 amendment adopted by the Board of Directors stopped additional benefit accruals for service earned and compensation paid after December 31, 2007. Thus, a participants benefit will be frozen as of the end of 2007.
The Board of Directors of Webster Bank adopted a nonqualified supplemental retirement plan (the Supplemental Plan) in 1990, which was amended and restated effective January 1, 2003 for certain management and other highly compensated employees who are also participants in the Pension Plan. The nonqualified supplemental retirement plan (the Supplemental Plan) provides supplemental pension benefits that are not available under the Pension Plan because annual compensation in excess of $225,000 (subject to cost of living increases) may not be used in the calculation of retirement benefits under the Code and because annual pension benefits are currently subject to a maximum of $180,000 (subject to cost of living increases). Annual compensation for both the qualified plan and the Supplemental Plan is defined as base pay, overtime, commissions, and bonuses (including bonuses for which the participant has deferred to a future year).
In place of the pension formula in the Supplemental Plan, Mr. Smith and Mr. Bromage receive a benefit at age 65 equal to 60% of the average of the highest compensation during five consecutive calendar years, reduced by benefits from the Pension Plan, Social Security, and the pension plan of prior employers. It is also reduced in the event of retirement before age 65 in the same manner as the Pension Plan, except there is no reduction applied to the benefit under the pension plan of prior employers. Benefits under the Supplemental Plan are payable in monthly installments. As with the qualified Pension Plan, pension benefits in the Supplemental Plan will be frozen as of December 31, 2007. Thus, service and compensation after this date will not be used in calculating an executives benefit from this plan.
The assumptions used to determine the present value the accumulated benefits for purposes of the Pension Benefits table consisted of a 6.40% interest rate for the qualified plan, a 6.30% interest rate for the non-qualified supplemental retirement plan, and the RP2000 Mortality Table.
Nonqualified Deferred Compensation
The following table shows the contributions to, the earnings of, and the distributions from each named executive officers account under Websters nonqualified deferred compensation plans for the fiscal year ended December 31, 2007.
Nonqualified Deferred Compensation
Executive officers are eligible to participate in Webster Banks Nonqualified Deferred Compensation Plan. Under the terms of the plan, executive officer participants may elect to defer up to 25% of their base pay and up to 100% of their bonuses. None of the named executive officers contributed to the Nonqualified Deferred Compensation Plan in 2007. As described in more detail above in the Compensation Disclosure and Analysis, certain executive officers also are eligible for employer contributions to be credited to a deferred compensation account. The amounts credited to these accounts accrue monthly interest based on the ten year Treasury rate plus 100 basis points. Furthermore, in 2005, Mr. Smith elected to defer restricted stock that otherwise would have been payable in 2007. These amounts are treated as invested in Webster Common Stock, and receive non-preferential dividend equivalent credits at the same time and in the same amount as dividends are credited on the Webster Common Stock. All deferred compensation accounts are payable upon death, disability, termination of service or a specified date that is at least five years from the year of deferral. Distribution elections may be paid in a lump sum or in ten annual installments, except in the case of disability, where lump sum distribution is required.
Potential Payments on Termination or Change in Control
Change in control provisions benefit Websters shareholders by assisting with retention of executives during rumored and actual change in control activity when continuity is a key factor in preserving the value of the business. Other termination benefits are provided based on the time needed by executives of that level to find new employment and to facilitate changes in key executives as needed.
Change in Control Agreements
Pursuant to the Change in Control Agreements between Webster and each of the named executive officers, each executive is eligible to receive payments and other benefits, subject to the conditions described below, in the event the executive is terminated during the three year period following a change in control. A change in control is defined by the agreements as:
Payments and Benefits. The payments and benefits payable to the named executive officers under the Change in Control Agreements are as follows:
In the event of a termination under the above circumstances, the executive is entitled to:
In addition, if the payments or benefits provided to an executive officer would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code (relating to excess parachute payments), Webster will pay to the executive officer a gross-up amount sufficient (after all taxes) to pay such excise tax (including interest and penalties with respect to any such taxes). However, if the payments and distributions do not exceed 110% of the maximum amount that could be paid to the executive officer such that no excise tax would be imposed, no gross-up payment will be made and the payments and distributions will be reduced to such maximum amount.
Assuming a December 31, 2007 termination event, the aggregate value of the payments and benefits to which each named executive officer would be entitled in the event of termination other than for Cause, Death or Disability, or in the event the executive terminates employment for Good Cause would be a follows:
Equity Compensation in the Event of a Change in Control
In the event of a change in control (as defined above under the Change in Control Agreements), all equity awards granted under Websters Amended and Restated 1992 Stock Option Plan (the Option Plan) that are outstanding immediately prior to the change in control shall become fully vested and exercisable upon the change in control.
Assuming a December 31, 2007 change in control, the number and value of all equity awards that would vest and become exercisable for each named executive officer would be as follows:
Non-Change-in-Control Executive Severance Plan
Under Websters Non-compete Agreement, if Webster terminates a named executive officer without Cause (and under circumstances in which payment would not be due under the Change in Control Agreements) severance benefits become payable. The executives severance benefits for involuntary termination without Cause are (a) a lump sum payment equal to the sum of (x) the executive officers then current annual base salary and (y) the prorated amount of any target bonus to be paid pursuant to Websters annual incentive compensation plan during the then current fiscal year, and (b) subject to certain limitations, continued medical and dental coverage for the shorter of one year or until the executive officer accepts other employment on a substantially full time basis if earlier. The executives receipt of the foregoing severance payments and benefits is conditioned upon the executive entering into a general release and waiver in favor of Webster, and in consideration of the payment the executive agrees to a one-year non-competition and non-solicitation covenant.
Pursuant to Websters Amended and Restated 1992 Stock Option Plan, in the event an executive is terminated by Webster without Cause, and the termination occurs prior to the full vesting and exercisability of an executives options, the portion of the executives options considered vested and exercisable is to be determined by reference to the length of time the executive was employed by Webster.
Assuming a termination other than for Cause occurred as of December 31, 2007, the amounts estimated to be paid to each of the named executive officers under the Executive Severance Policy and the Amended and Restated 1992 Stock Option Plan would be as follows:
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee are Messrs. Becker (Chairman), Carpenter, Gelfenbien and Ms. Osar. No person who served as a member of the Compensation Committee during 2007 was a current or former officer or employee of Webster or any of its subsidiaries or, except as disclosed below, engaged in certain transactions with Webster required to be disclosed by regulations of the SEC. Additionally,
there were no compensation committee interlocks during 2007, which generally means that no executive officer of Webster served as a director or member of the compensation committee of another entity, one of whose executive officers served as a director or member of the Compensation Committee of Webster.
From time to time, Webster Bank makes loans to its directors and executive officers and related persons and entities for the financing of homes, as well as home improvement, consumer and commercial loans. These loans are made in the ordinary course of business, are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons not related to Webster or Webster Bank, and neither involve more than normal risk of collectibility nor present other unfavorable features.
George T. Carpenter, a director of Webster and Webster Bank, is the President and Treasurer of Carpenter Realty Co. (Carpenter Realty) and S. Carpenter Construction Co. (Carpenter Construction). During fiscal year 1998, Webster Bank entered into a fifteen year lease for office space with Carpenter Realty and the amount paid to Carpenter Construction for rent and reimbursement of real estate taxes in 2007 totaled $72,915. Webster Bank entered into a lease with Carpenter Realty effective March 1, 2000 for storage and work space, and the amount paid for rent and reimbursement of real estate taxes in 2007 totaled $13,861.
Gregory Jacobi, son of C. Michael Jacobi, a director of Webster and Webster Bank, is employed by Webster Bank as a VP-IT Senior Manager. During fiscal year 2007, Webster Bank paid Gregory Jacobi a base salary of $131,547, a bonus of $26,046 and a grant of 619 shares of restricted stock.
For a description of loans made to Webster Banks directors, executive officers and related persons and entities, see Compensation Committee Interlocks and Insider Participation.
Policies and Procedures Regarding Transactions with Related Persons
Pursuant to Websters Code of Business Conduct and Ethics, any transactions between Webster and a Webster affiliate, director, employee, an immediate family member of a Webster director or employee or business entities in which a Webster director or employee or an immediate family member of a Webster director employee is an officer, director and/or controlling shareholder must be conducted at arms length. Prior approval of the Board of Directors for any such transactions are governed by Federal Reserve Regulation O, and the related persons interest in any such transaction requiring Board action must be disclosed to the Board prior to any action being taken. Any consideration paid or received by Webster in such a transaction must be on terms no less favorable than terms available to an unaffiliated third party under similar circumstances. Any interest of a director or officer in such transactions that do not require prior Board approval shall be reported to the Board of Directors at least annually.
Audit Committee Report
The Corporations Audit Committee currently has four members, Messrs. Jacobi (Chairman), Crawford, Finkenzeller and Morse. As of the date of the Proxy Statement, each of the Committee members is an independent director under the New York Stock Exchange rules. The Audit Committees responsibilities are described in a written charter that was adopted by the Corporations Board of Directors.
The Audit Committee has reviewed and discussed the Corporations audited financial statements for the fiscal year ended December 31, 2007 with Websters management. The Audit Committee has discussed with KPMG LLP, the Corporations independent registered public accounting firm, the matters required to be discussed by SAS No. 114, The Auditors Communication With Those Charged With Governance. The Audit Committee has received the written disclosures from KPMG LLP required by Independence Standards Board
Standard No. 1, Independence Discussions with Audit Committees, and has discussed with KPMG LLP the independence of KPMG LLP. Based on the review and discussions described in this paragraph, the Audit Committee recommended to Websters Board of Directors that the Corporations audited financial statements for the year ended December 31, 2007 be included in the Corporations Annual Report on Form 10-K for the fiscal year ended December 31, 2007 for filing with the Securities and Exchange Commission.
STOCK OWNED BY MANAGEMENT
The following table sets forth information as of February 1, 2008 with respect to the amount of Webster Common Stock beneficially owned by each director of Webster, each nominee for election as a director, each of the named executive officers and by all directors and executive officers of Webster as a group.
The table includes shares owned by spouses, other immediate family members and others over which the persons named in the table possess shared voting and/or shared investment power as follows: Mr. Becker, 2,016 shares; Mr. Carpenter, 47,710 shares; Mr. Smith, 78,241 shares; and all directors and executive officers as a group, 84,790 shares. The table also includes the following: 2,289,030 shares subject to outstanding options which are exercisable within 60 days from February 1, 2008; 107,620 shares held in the 401(k) Plan by executive officers; 7,461 shares purchased by executive officers through the Employee Stock Purchase Plan held by Fidelity Investments; 45,034 shares of restricted stock that were not vested as of February 1, 2008; 3,783 shares of Common Stock underlying restricted stock for Mr. Bromage that were deferred pursuant to the terms of the Option Plan and 20,061 shares of Common Stock underlying restricted stock for Mr. Smith that were deferred pursuant to the terms of the Option Plan. All other shares included in the table are held by persons who exercise sole voting and sole investment power over such shares.
Outstanding options reflected in the table were held as follows: Mr. Becker, 28,618 shares; Mr. Bromage, 281,753 shares; Mr. Carpenter, 28,618 shares; Mr. Crawford, 28,618 shares; Mr. Finkenzeller, 26,618 shares; Mr. Gelfenbien, 16,618 shares; Mr. Jacobi, 28,618 shares; Mr. McBrair, 22,067 shares; Mr. Morse, 12,618 shares; Mr. Plush, 6,988 shares; Ms. Osar, 4,618 shares; Mr. Savage, 46,707 shares;and Mr. Smith, 968,095 shares. Also reflected are 14,498 shares of phantom stock held by Mr. Smith in the Webster Bank Deferred Compensation Plan for Directors and Officers.
PRINCIPAL HOLDERS OF VOTING SECURITIES OF WEBSTER
The following table sets forth information as of February 14, 2008 with respect to the beneficial ownership of Common Stock by any person or group as defined in Section 13(d)(3) of the Exchange Act who is known to the Corporation to be the beneficial owner of more than five percent of the Common Stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires Websters directors, certain officers and persons who own more than 10 percent of its Common Stock to file with the Securities and Exchange Commission initial reports of ownership of Websters equity securities and to file subsequent reports when there are changes in such ownership. Based on a review of reports submitted to Webster, the Corporation believes that during the fiscal year ended December 31, 2007, all Section 16(a) filing requirements applicable to Websters directors, officers and more than 10% owners were complied with on a timely basis.
APPROVAL OF THE QUALIFIED PERFORMANCE-BASED COMPENSATION PLAN
The Qualified Performance-Based Compensation Plan (the Plan) was adopted effective January 1, 1998, and was approved by shareholders on April 23, 2003 for a five-year term to expire at the Annual Meeting. The Board of Directors has approved the Plan for another five-year term, subject to shareholder approval. The Plan is designed to further the growth and profitability of Webster by providing selected key employees with the opportunity to earn incentive compensation based on business, financial, and strategic results, thereby enabling Webster to motivate key employees to achieve high profitability and strategic objectives for the Corporation. The Plan is intended to satisfy the requirements of Section 162(m) of the Code with respect to the deduction of qualified performance-based compensation. No awards will be made under the Plan after the 2008 Annual Meeting unless the Plan is re-approved by shareholders at the Annual Meeting by a majority of the votes cast in person, or by proxy, and entitled to vote on the issue at a duly held meeting of the shareholders.
Under Section 162(m) of the Code and the regulations promulgated thereunder, a federal income tax business expense deduction is generally not allowed for annual compensation in excess of $1 million paid by a publicly traded corporation to its Chief Executive Officer and to the four other most highly compensated officers (the covered employees). Under those provisions, however, there is an exemption to permit the deduction of qualified performance-based compensation. To qualify for such exemption, (i) the compensation must be paid solely on account of the attainment of one or more pre-established, objective performance goals; (ii) the performance goals under which compensation is paid must be established by a compensation committee comprised solely of two or more directors who qualify as outside directors for purposes of the exemption; (iii) the material terms under which the compensation is to be paid must be disclosed to and subsequently approved in a separate vote by shareholders of the corporation before payment is made; and (iv) the compensation committee must certify in writing before payment of the compensation that the performance goals and any other material terms were in fact satisfied.
The Board of Directors believes that where Webster can seek to accomplish its compensation objectives in a manner that maximizes the deductibility of compensation for federal income tax purposes, the Corporation should seek to do so. Accordingly, the Board of Directors seeks shareholder re-approval of the material terms of the Plan so that future awards under the Plan will be deemed to be qualified performance-based compensation under Section 162(m) of the Code and the regulations thereunder.
DESCRIPTION OF THE MATERIAL TERMS OF THE PLAN
The following summary of the material terms of the Plan is qualified in its entirety by reference to the terms of the Plan, a copy of which is attached to this Proxy Statement as Exhibit A. Undefined capitalized terms are defined in Exhibit A.
The Plan is administered by the Compensation Committee which consists of not less than three directors appointed by the Board of Directors, each of whom is an "outside director" within the meaning of the regulations implementing Section 162(m) of the Code (the Committee). The Committee has full authority to make, interpret and approve all rules for the administration of the Plan. The performance goal under the Plan is the attainment of positive Income Before Taxes (defined as Webster's net income for a fiscal year or one or more fiscal quarters, before provision for taxes on income, merger and acquisition expenses and awards under the Plan, as determined by Webster's independent accountants). A participant's Performance Bonus under the Plan will be a specified percentage (not more than 2%) of Income Before Taxes, or a specified percentage of base salary (not more than 2% of Income Before Taxes). The Committee selects participants and establishes the specific Performance Bonus percentages. The Committee retains negative discretion to reduce the amount of any Performance Bonus payable under the Plan, including a reduction to zero. The reduction in the Performance Bonus payable to one participant will not have the effect of increasing the amount that is payable to any other participant. The Committee can condition the payment of a Performance Bonus under the Plan upon the
satisfaction of such objective or subjective standards as the Committee shall determine to be appropriate in its sole discretion. Before any payment can be made under the Plan, the Committee must certify in writing that the performance goal of positive Income Before Taxes was in fact satisfied.
The Chief Executive Officer, the Chief Operating Officer and the Chief Financial Officer of Webster are participants in the Plan. During the first 90 days of each fiscal year, the Committee can select as participants any other individuals that the Committee determines, in its discretion, are or may be covered employees of Webster for purposes of the limitation on the deduction of compensation imposed under Section 162(m) of the Code. No other employees have participated in the Plan to date.
The Committee establishes the performance goal for each participant within 90 days of the beginning of a fiscal year. However, if an individual becomes eligible to be a participant after the end of such 90-day period, the Committee may designate such individual as a participant and may award a Performance Bonus to such individual, provided that the performance goal in such case will be the attainment of positive Income Before Taxes for fiscal quarters after the quarter in which such individual became a Plan participant.
Performance Bonuses are payable in cash or restricted stock at such times and on such terms as determined by the Committee in its sole discretion (or if no such determination is made, in a cash lump sum as soon as reasonably practicable after the end of the fiscal year).
Webster has no obligation to reserve or otherwise fund in advance any amounts that are or may become payable under the Plan. The funds for payments under the Plan may be commingled with other funds of the Corporation and need not in any way be segregated from other assets or funds held by Webster. Moreover, the Board may at any time suspend, modify, or amend the Plan in whole or in part. However, no amendment to materially increase benefits, materially modify the requirements as to eligibility or to change the material terms of the performance goal under the Plan will be effective unless such change is disclosed to and approved by the shareholders of Webster. The Plan will terminate on the date of the first shareholders meeting of Webster that occurs in 2008, unless shareholders re-approve the Plan before that date.
The approval by an affirmative vote of the holders of a majority of the votes cast in person, or represented by proxy, and entitled to vote at the Annual Meeting is required to approve the material terms of the Plan.
The Board of Directors recommends a vote FOR approval of the material terms of the Qualified Performance-Based Compensation Plan. If not otherwise specified, proxies will be voted FOR approval.
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors has appointed the firm of KPMG LLP to continue as the independent registered public accounting firm for Webster for the year ending December 31, 2008, subject to ratification of the appointment by Websters shareholders. KPMG LLP was appointed as the independent registered public accounting firm of Webster in 1985, has performed audits for Webster for the years ended December 31, 1986 through 2007. Unless otherwise indicated, properly executed proxies will be voted in favor of ratifying the appointment of KPMG LLP, an independent registered public accounting firm, to audit the consolidated financial statements of Webster for the year ending December 31, 2008 and the internal control over financial reporting of Webster as of December 31, 2008. No determination has been made as to what action the Board of Directors would take if Websters shareholders do not ratify the appointment.
Assuming the presence of a quorum at the Annual Meeting, the affirmative vote of the majority of the votes cast is required to ratify the appointment of KPMG LLP as Websters independent registered public accounting firm for the year ending December 31, 2008.
Representatives of KPMG LLP are expected to be present at the Annual Meeting. They will be given an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.
The Board of Directors recommends that shareholders vote FOR ratification of the appointment of KPMG LLP as Websters independent registered public accounting firm for the year ending December 31, 2008.
Auditor Fee Information
The following table presents fees for professional audit services rendered by KPMG LLP for the audit of the Corporations annual financial statements for the years ended December 31, 2007 and December 31, 2006 and fees billed for other services rendered by KPMG LLP during those periods.
Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of Independent Registered Public Accounting Firm
Consistent with Securities and Exchange Commission requirements regarding auditor independence, the Audit Committee has adopted a policy to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The Audit Committee has delegated authority to the Chairman of the Audit Committee to pre-approve up to $100,000 in audit and permissible non-audit services. Any decisions by the Chairman of the Audit Committee under this delegated authority will be reported at the next meeting of the Audit Committee. Management is required to report, on a quarterly basis, to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis.
All engagements of the independent registered public accounting firm to perform any audit services and non-audit services after implementation of the pre-approval policy have been pre-approved by the Audit Committee in accordance with the policy. The pre-approval policy has not been waived in any instance. All engagements of the independent registered public accounting firm to perform any audit services and non-audit services prior to the date the pre-approval policy was implemented were approved by the Audit Committee in accordance with its normal functions, and none of those engagements made use of the de minimus exception to pre-approval contained in the Commissions rules.
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
FOR INCLUSION IN PROXY STATEMENT
Any proposal which a Webster shareholder wishes to have included in Websters Proxy Statement and form of proxy relating to Websters 2009 Annual Meeting of Shareholders under Rule 14a-8 of the Securities and Exchange Commission must be received by Websters Secretary at 145 Bank Street, Waterbury, Connecticut 06702 by November 7, 2008. Nothing in this paragraph shall be deemed to require Webster to include in its Proxy Statement and form of proxy for the meeting any shareholder proposal which does not meet the requirements of the Securities and Exchange Commission in effect at the time. Any other proposal for consideration by shareholders at Websters 2009 Annual Meeting of Shareholders must be delivered to, or mailed to and received by, the Secretary of Webster not less than 30 days nor more than 90 days prior to the date of the meeting if Webster gives at least 45 days notice or prior public disclosure of the meeting date to shareholders.
As of the date of this Proxy Statement, the Board of Directors does not know of any other matters to be presented for action by the shareholders at the Annual Meeting. If, however, any other matters not now known properly come before the meeting, the persons named in the accompanying proxy will vote the proxy in accordance with the determination of a majority of the Board of Directors.
March 7, 2008
WEBSTER FINANCIAL CORPORATION
QUALIFIED PERFORMANCE-BASED COMPENSATION PLAN
(as amended and restated effective January 1, 2008)
1.1 Webster Financial Corporation (Webster) hereby adopts this Qualified Performance-Based Compensation Plan (the Plan), effective as of January 1, 2003.
1.2 The purposes of the Plan are to enhance Websters ability to attract and retain highly qualified executives and to provide additional financial incentives to such executives to promote the success of Webster and its subsidiaries.
1.3 Remuneration payable under the Plan is intended to constitute qualified performance-based compensation for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the Code) and Section 1.162-27 of the Treasury Regulations thereunder (the Regulations) and the Plan shall be construed consistently with such purpose. The performance goal under which compensation will be paid under the Plan shall be based on the attainment of positive Income Before Taxes, as defined below.
For purposes of interpreting the Plan and related documents, the following definitions shall apply:
2.1 Board means the Board of Directors of Webster.
2.2 Code means the Internal Revenue Code of 1986, as amended, or the corresponding provisions of any subsequent internal revenue law.
2.3 Committee means a committee appointed by the Board to administer the Plan and comprised of not less than three directors of Webster, each of whom shall qualify in all respects as an outside director for purposes of Code Section 162(m) and Section 1.162-27(e)(3) of the Regulations.
2.4 Effective Date means January 1, 2003.
2.5 Eligible Executive means the chief executive officer of Webster and each other individual that the Committee determines, in its discretion, is or may be a covered employee of Webster within the meaning of Code Section 162(m) and Section 1.162-27(c)(2) of the Regulations.
2.6 Expiration Date means the date of the first shareholders meeting of Webster that occurs in the fifth calendar year following the calendar year in which the shareholders of Webster approved the Plan (or, in the event shareholders shall have approved the Plan on more than one occasion, the year in which the most recent such shareholder approval occurred).
2.7 Fiscal Year means each fiscal year of Webster commencing on or after the Effective Date and before the Expiration Date.
2.8 Income Before Taxes means Webster's net income for a Fiscal Year or one or more fiscal quarters, before (i) provision for taxes on income, (ii) merger and acquisition expenses and (iii) awards under the Plan, as determined and reported to the Committee by Websters independent accountants.
2.9 Performance Bonus means an annual bonus opportunity amount determined by the Committee and stated as a specified percentage (not more than 2%) of Income Before Taxes or as a specified percentage of base salary (not more than 2% of Income Before Taxes).
2.10 Regulations means the Treasury Regulations promulgated under the Code, as amended from time to time.
2.11 Webster means Webster Financial Corporation, a Delaware corporation.
The Plan shall be administered by the Committee. The Committee shall have the authority to establish and administer the performance goal and to certify the attainment of the performance goal as described in Section 6 below. The Committee shall have the full power and authority to construe, interpret and administer the Plan and shall have the exclusive right to make awards under the Plan and to exercise negative discretion pursuant to Section 5 below. The Committee may take action at a meeting or by written consent in accordance with the Bylaws of Webster. The performance goal may be ratified by the Board.
Eligibility under this Plan is limited to Eligible Executives designated by the Committee, in its discretion.
Not later than the 90th day of each Fiscal Year, the Committee, in its sole discretion, shall designate one or more Eligible Executives to be participants in the Plan and shall specify the performance goal, which shall be based on the attainment of positive Income Before Taxes, and the other terms and conditions for the determination and payment of a Performance Bonus to each such Eligible Executive for such Fiscal Year. The Performance Bonus payable to an Eligible Executive with respect to any Fiscal Year shall not exceed 2% of Income Before Taxes for such year. The Committee may condition the payment of a Performance Bonus upon the satisfaction of such objective or subjective standards as the Committee shall determine to be appropriate, in its sole discretion, including, without limitation, achieving a Board approved corporate financial plan and/or achieving certain targeted returns. The Committee shall retain the discretion to reduce the amount of any Performance Bonus that would otherwise be payable to an Eligible Executive (including, without limitation, a reduction in such amount to zero). The Committee's exercise of such discretion with respect to an Eligible Executive shall not have the effect of increasing the Performance Bonus that is payable to any other Eligible Executive. If an individual becomes an Eligible Executive after the end of such 90-day period, the Committee may award a Performance Bonus to such Eligible Executive for the Fiscal Year on such terms and conditions as the Committee shall determine, provided that the performance goal with respect to such Performance Bonus shall be based on attainment of positive Income Before Taxes for fiscal quarters after the quarter in which such individual became an Eligible Executive.
As soon as reasonably practicable after the end of each Fiscal Year, Webster's independent accountants shall determine and report to the Committee the amount of the Income Before Taxes for such Fiscal Year and the Committee shall determine the extent to which the performance goal has been attained with respect to each Performance Bonus for such Fiscal Year. The Committee shall certify in writing the attainment of the performance goal and the amount of each Performance Bonus for such Fiscal Year.
Performance Bonuses shall be paid in cash or restricted stock at such times and on such terms as determined by the Committee in its sole discretion (or if no such determination is made, in a single sum as soon as reasonably practicable after the end of the Fiscal Year).
Nothing in the Plan shall confer upon any person any right to continue to serve as an officer or employee of Webster or of any subsidiary or affiliate of Webster.
Webster shall have the right to withhold, or require an Eligible Executive to remit to Webster, an amount sufficient to satisfy any applicable federal, state, local or foreign withholding tax requirements imposed with respect to the payment of any Performance Bonus.
The rights and benefits under this Plan are personal to an Eligible Executive and shall not be subject to any voluntary or involuntary alienation, assignment, pledge, transfer, or other disposition. In the event of an Eligible Executive's death, any payment to which the Eligible Executive may be entitled under the Plan shall be made to his or her beneficiary last designated in a written notice delivered to the Committee or in the absence of such designation, to the Eligible Executive's estate. Webster shall have no obligation to reserve or otherwise fund in advance any amounts that are or may in the future become payable under this Plan. Any funds that Webster, acting in its sole discretion, determines to reserve for future payments under this Plan may be commingled with other funds of Webster and need not in any way be segregated from other assets or funds held by Webster. An Eligible Executive's rights to payment under the Plan shall be limited to those of a general creditor of Webster.
11.1 The Plan shall be effective as of the date of adoption by the Board, subject to approval of the Plan within one year thereafter by a majority of the votes cast at a duly held meeting of the shareholders of the company, provided, however, that upon approval of the Plan by the shareholders of Webster, all Performance Bonuses awarded under the Plan on or after the Effective Date shall be fully effective as if the shareholders had approved the Plan on the Effective Date.
11.2 Subject to the limitations of this Section 11.2, the Board may at any time suspend or terminate the Plan, and may amend it from time to time in such respects as the Board may deem advisable; provided, however, the Board shall not amend the Plan in the following respects without the approval of shareholders then sufficient to approve the Plan in the first instance:
(a) To materially increase the benefits accruing to any Eligible Executive under the Plan (for example, to increase the maximum percentage of Income Before Taxes that may be paid to an Eligible Executive pursuant to a Performance Bonus awarded under the Plan).
(b) To materially modify the requirements as to eligibility for participation in the Plan.
(c) To change the material terms of the performance goal under the Plan.
11.3 No Performance Bonus may be awarded during any suspension or after the termination of the Plan, and no amendment, suspension or termination of the Plan shall, without the consent of the person affected thereby, alter or impair any rights or obligations under any Performance Bonus previously awarded under the Plan. This Plan shall terminate upon the payment or cancellation of all of the Performance Bonuses awarded hereunder before the Expiration Date, unless previously terminated by the Board pursuant to this Section 11.
The validity, interpretation and effect of this Plan, and the rights of all persons hereunder, shall be governed by and determined in accordance with the laws of Delaware, other than the choice of law rules thereof.
* * * * *
This Plan was duly approved by the Board at a meeting held on the 30th day of January, 2008 and by the shareholders of Webster at a meeting held on the 24th day of April, 2008.
Annual Meeting of Shareholders
April 24, 2008
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Webster Financial Corporation (the Corporation) hereby appoints Joel S. Becker, Robert A. Finkenzeller and Laurence C. Morse, or any of them, with full power of substitution in each, as proxies to cast all votes which the undersigned shareholder is entitled to cast at the Annual Meeting of Shareholders (the Annual Meeting) to be held at 4:00 p.m., Eastern Time, on Thursday, April 24, 2008, at the Courtyard by Marriott, 63 Grand Street, Waterbury, Connecticut 06702, and at any adjournments of the meeting, for the following purposes. The undersigned shareholder hereby revokes any proxy or proxies heretofore given.
This proxy will be voted as directed by the undersigned shareholder. Unless contrary direction is given, this proxy will be voted FOR the election of the nominees listed in Proposal 1; FOR the approval of the Qualified Performance-Based Compensation Plan for an additional five-year term (Proposal 2); FOR the ratification of the Corporations appointment of KPMG LLP as its independent registered public accounting firm (Proposal 3); and in accordance with the determination of a majority of the Board of Directors as to other matters. The undersigned shareholder may revoke this proxy at any time before it is voted by delivering either a written notice of revocation of the proxy or a duly executed proxy bearing a later date to the Assistant Secretary of the Corporation, by re-voting by Internet or telephone, or by attending the Annual Meeting and voting in person. The undersigned shareholder hereby acknowledges receipt of the Notice of Annual Meeting and Proxy Statement.
Please sign and return the proxy card promptly in the enclosed envelope.
(If you noted any address changes above, please mark corresponding box on the reverse side.)
(Continued and to be signed and dated on the reverse side)