Webster Financial DEF 14A 2016
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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Webster Financial Corporation
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March 18, 2016
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 28, 2016 at 4:00 p.m., Eastern Time, at the Mattatuck Museum, 144 West Main Street, Waterbury, Connecticut 06702.
At the Annual Meeting, you will be asked: (i) to elect ten directors to serve for one-year terms; (ii) to approve, on a non-binding, advisory basis, the compensation of the named executive officers of Webster; (iii) to ratify the appointment of KPMG LLP as the independent registered public accounting firm of Webster for the year ending December 31, 2016; (iv) to approve the amendment and restatement of the 1992 Stock Option Plan and re-approve the material terms for payment of performance-based compensation under the 1992 Stock Option Plan, and (v) to approve an amendment to the Companys Third Amended and Restated Certificate of Incorporation, to provide that the Companys shareholders may remove any director from office, with or without cause; and (vi) to transact any other business that properly comes before the Annual Meeting or any adjournments of the meeting.
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 2015 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 28, 2016
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 28, 2016 at 4:00 p.m., Eastern Time, at the Mattatuck Museum, 144 West Main Street, Waterbury, Connecticut 06702, for the following purposes:
The Board of Directors has fixed the close of business on February 29, 2016 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 18, 2016
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 Annual Meeting to Be Held on April 28, 2016: This Proxy Statement, along with our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and our 2015 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 28, 2016
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 Company 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 28, 2016 at 4:00 p.m., Eastern Time, at the Mattatuck Museum, 144 West Main 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 18, 2016.
The Annual Meeting has been called for the following purposes:
1. To elect ten directors to serve for one-year terms (Proposal 1);
2. To approve, on a non-binding, advisory basis, the compensation of the named executive officers of Webster (Proposal 2);
3. 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, 2016 (Proposal 3);
4. To approve the amendment and restatement of the 1992 Stock Option Plan and re-approve the material terms for payment of performance-based compensation under the 1992 Stock Option Plan (Proposal 4);
5. To approve an amendment to the Companys Third Amended and Restated Certificate of Incorporation, to provide that the Companys shareholders may remove any director from office, with or without cause (Proposal 5); and
6. 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:
1. FOR the election of the Boards nominees as directors;
2. FOR the approval, on a non-binding, advisory basis, of the compensation of the named executive officers of Webster;
3. FOR the ratification of the appointment of Websters independent registered public accounting firm;
4. FOR the approval of the amendment and restatement of the 1992 Stock Option Plan and re-approve the material terms for payment of performance-based compensation under the 1992 Stock Option Plan; and
5. FOR the approval of an amendment to the Companys Third Amended and Restated Certificate of Incorporation, to provide that the Companys shareholders may remove any director from office, with or without cause.
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 Frederik F. Erikson, 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 $7,500 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 29, 2016 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 6,414 holders of record of the 91,420,698 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 27, 2016. 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 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 27, 2016. 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 non-binding, advisory vote on the compensation of the named executive officers of Webster, to approve the amendment and restatement of the 1992 Stock Option Plan and re-approve the material terms for payment of performance-based compensation under the 1992 Stock Option Plan and to ratify the appointment of Websters independent registered public accounting firm. The affirmative vote of at least 66 2/3% of our Common Stock outstanding is required to approve an amendment of the Third Amended and Restated Certificate of Incorporation, to provide that the Companys shareholders may remove any director from office, with or without cause. Shareholders votes will be tabulated by the persons appointed by the Board of Directors to act as inspectors of election for the Annual Meeting.
Under New York Stock Exchange Rule 452, which governs NYSE brokerage members, brokerage firms may not vote on non-routine matters in their discretion on behalf of their clients if such clients have not furnished voting instructions. A broker non-vote occurs when a brokers customer does not provide the broker with voting instructions on non-routine matters for shares owned by the customer but held in the name of the broker. Proposal 3 concerns a routine matter and thus brokerage firms may vote, in person or by proxy, on such proposal on behalf of their clients without voting instructions. Because none of the other matters to be voted upon at the Annual Meeting are considered routine matters under Rule 452, there potentially can be broker non-votes at the Annual Meeting. Both abstentions and broker non-votes will be treated as shares present for purposes of determining the presence of a quorum at the Annual Meeting. Abstentions and broker non-votes will not be counted for purposes of determining the number of votes cast on Proposals 1, 2, or 4 and, therefore, will have no effect on the outcome of the votes for those proposals. Abstentions will not be counted for purposes of determining the number of votes cast on Proposal 3 and, therefore, will have no effect on the outcome of the vote for that proposal. Proposal 3 concerns a routine matter, and thus brokerage firms may vote. Proposal 5 requires approval of the holders of at least 66 2/3% of our outstanding Common Stock and, therefore, a broker non-vote or abstention will have the same effect as a vote against Proposal 5.
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 Companys 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 2015 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 Frederik F. Erikson, Assistant Secretary, Webster Financial Corporation, 145 Bank Street, Waterbury, Connecticut 06702. Our annual report on Form 10-K is available on the Companys website, www.wbst.com.
ELECTION OF DIRECTORS
At the Annual Meeting, ten directors will be elected to serve for one-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 failed to receive a majority of the votes cast will not participate in the Boards decision.
Information as to Nominees
The following table sets forth the names of the Board of Directors nominees for election as directors, all of whom are current directors of Webster. Also set forth in the table is certain other information with respect to each such persons age at December 31, 2015, 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). In keeping with the Boards replenishment plan, including its goal to reduce average director tenure, Mr. Finkenzeller will retire at the 2016 Annual Meeting. He has served on the Board since the formation of the holding company in 1986. The Board of Directors greatly appreciates Mr. Finkenzellers faithful service and his contributions to the Board and to Websters success and growth. Additionally, in keeping with Websters Qualification Guidelines for Board Members, Mr. Jacobi will not be nominated for an additional term in 2017, since he will have reached age 75.
Following the table are biographies of each of the nominees which contain information regarding each such persons business experience, director positions held currently or at any time during the last five years, information regarding involvement in certain legal or administrative proceedings, if applicable, and the experiences, qualifications, attributes or skills that caused the Nominating and Corporate Governance Committee and the Board of Directors to determine that such person should serve as a director as of the time of filing of this Proxy Statement. Each director brings a strong and unique background and set of skills to the Board, giving the Board as a whole competence and experience in a wide variety of areas, including corporate governance, board service, executive management, business, finance and marketing. The process undertaken by the Nominating and Corporate Governance Committee in recommending qualified candidates is described beginning on page 13 under Corporate GovernanceDirector Qualifications and Nominations.
William L. Atwell is managing director of Atwell Partners, LLC, a Darien, Connecticut based company which provides consulting services and market insights to the financial services industry. Mr. Atwell was President of CIGNA International at CIGNA Corporation from 2008 to 2012. Earlier in his career, Mr. Atwell held various senior positions with The Charles Schwab Corporation, including President, Individual Investor Enterprise and Schwab Bank. Mr. Atwell began his career at Citibank where he held various senior executive roles. Mr. Atwell serves as an independent trustee of AQR Mutual Funds (AQR Capital Management LLC) and chairs its nominating and governance committee and is a member of its audit committee. Mr. Atwell
serves as a trustee and is the former Chairman (2012-2015) of the Fairfield University board of trustees. Mr. Atwell is a member of the Compensation Committee and the Risk Committee.
Mr. Atwells role as a former President of CIGNA International and 35 years of executive experience in the retail financial services industry, including banking, brokerage and insurance, provides insight regarding Websters opportunities and challenges.
Joel S. Becker is Chairman and Chief Executive Officer of Torrco, a Waterbury, Connecticut based wholesale distributor of plumbing, heating and industrial pipe valve and fitting supplies to contractors and industry. Mr. Becker is a member of the Compensation Committee and the Risk Committee.
Mr. Beckers experience as Chairman and Chief Executive Officer of a local business in Websters market area combined with more than 25 years of experience on Websters Board gives him unique insight into Websters challenges, opportunities and operations. He also has extensive experience in public company executive compensation as a result of his over nine years of service as Chair of the Compensation Committee.
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, Chair of the Nominating and Corporate Governance Committee and a member of the Audit Committee and the Executive Committee.
Mr. Crawfords extensive executive and corporate governance experience as a former Chief Executive Officer of three companies, including a financial institution, and his more than 15 years of service on Websters Board, including thirteen years as the Lead Director, provides him with a seasoned view of Websters operations and challenges.
Elizabeth E. Flynn was Vice Chairman of Marsh, LLC in New York, New York, a global leader in insurance broking and risk management until her retirement on December 31, 2015. Ms. Flynn was President of Marshs Insurance Services Group from September 2012 to May 2013, and CEO and President of Marsh U.S. Consumer from October 2011 to September 2012. From June 2010 to October 2011, she served as Global Chief Operating Officer at Guy Carpenter & Company, LLC. Earlier in her career, Ms. Flynn was Senior Vice President, Restructuring Office/Divestitures, at American International Group, and worked more than 20 years at JP Morgan Chase & Company in various senior executive roles. Ms. Flynn is a member of the Audit Committee and the Nominating and Corporate Governance Committee.
Ms. Flynns former role as Vice Chairman of Marsh, LLC and extensive operational and transformational leadership in numerous financial services organizations, including retail banking units while at JP Morgan Chase, brings meaningful and relevant experience to Webster.
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 publicly held 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 director of Corrections Corporation of America (NYSE:CXW), a publicly held company headquartered in Nashville, Tennessee engaged in the ownership and management of prisons for federal, state and local governments, a director and chairman of the board of Sturm Ruger & Co., Inc. (NYSE:RGR), a publicly held company headquartered in Southport, Connecticut engaged in
manufacturing and distribution of consumer products, a director of Kohlberg Capital Corporation (NASDAQ:KCAP), a publicly held company headquartered in New York, New York specializing in middle market companies, and a director of Performance Sports Group (NYSE:PSG), a publicly held company headquartered in Exeter, New Hampshire engaged in the design and manufacture of sports equipment. Mr. Jacobi is a member of the Risk Committee.
Mr. Jacobi provides the Board with extensive experience and expertise in corporate finance and accounting as a Certified Public Accountant, having served as Chair of the Audit Committee of Webster for many years. His former service as the Chief Executive Officer of a public company also brings strong executive experience to the Board.
Laurence C. Morse is the Managing Partner of Fairview Capital Partners, Inc., in West Hartford, Connecticut based 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 Institute of International Education, a member of the Board of Trustees of Harris Associates Investment Trust (which oversees the Oakmark Family of Mutual Funds), a member of the Board of Trustees of Princeton University, and is a director of Princeton University Investment Company and 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. Mr. Morse is a member of the Compensation Committee and the Nominating and Corporate Governance Committee.
Mr. Morses entire career has been spent in the investment management field, including as the co-founder and Managing Partner of an investment management firm, which provides the Board with extensive knowledge of the capital markets and accounting issues. His experience has made him adept at performing rigorous risk assessments of managers and management teams, and assessing new technologies, products and services, business strategies, markets and industries.
Karen R. Osar was Executive Vice President and Chief Financial Officer of Chemtura Corporation (NYSE:CHMT), a specialty chemicals company headquartered in Middlebury, Connecticut from 2004 until her retirement in March 2007. From 1999 to April 2003, Ms. Osar served as Senior Vice President and Chief Financial Officer of Westvaco Corporation and Mead Westvaco Corporation. She is a director and audit committee chair of Innophos Holdings, Inc. (NASDAQ:IPHS), a publicly held specialty chemicals company headquartered in Cranbury, New Jersey, a director and audit committee member of Sappi Limited (JSE:SAP), a publicly held company and one of the largest global producers of coated paper and chemical cellulose, headquartered in Johannesburg, South Africa, and from 1999 through 2006 she served as a director and audit and finance committee chair of Allergan, Inc., a publicly held multi-specialty health care company focused on developing and commercializing pharmaceuticals. Ms. Osar is Chair of the Audit Committee and a member of the Risk Committee and the Executive Committee.
Ms. Osars experience as the former Chief Financial Officer of a public company, her previous corporate finance experience at JPMorgan Chase & Company, and her service as Chair of the Audit Committee for Webster and as the chair of the audit committee of another public company, provides the Board with strong corporate finance and accounting experience. Her board committee service also provides corporate governance and executive compensation expertise.
Mark Pettie is President of Blackthorne Associates, LLC, a Woodcliff Lake, New Jersey based company which provides consulting services to firms investing in a wide range of consumer oriented businesses. Mr. Pettie served as Chairman and Chief Executive Officer of Prestige Brands Holdings, Inc. (NYSE:PBH), a publicly held company headquartered in Irvington, New York which develops, sells, distributes and markets over-the-counter drugs, household cleaning products and personal care items, from January 2007 until September 2009. He was President of the Dairy Foods Group with ConAgra from 2005 to 2006. From
1981 to 2004, Mr. Pettie held various positions of increasing responsibility in general management, marketing and finance at Kraft Foods and was named Executive Vice President and General Manager of Kraft Foods Coffee Division in 2002. He is Chair of the Risk Committee and a member of the Audit Committee and the Executive Committee.
Mr. Petties former experience as Chief Executive Officer of a public company brings strong executive experience to the Board, along with his expertise in finance and marketing. He also has extensive business and corporate governance experience as a director for both public and private companies.
Charles W. Shivery is former non-executive Chairman of the Board of Northeast Utilities (NYSE:NU) (now known as Eversource Energy). He joined Northeast Utilities in 2002 and was Chairman, President and Chief Executive Officer from March 2004 until April 2012, upon the completion of the merger with NSTAR, and then served as non-executive Chairman of the Board until October 2013. He previously held posts with the company including interim President, President-Competitive Group of Northeast Utilities, and President and Chief Executive Officer of NU Enterprises, Inc., the unregulated subsidiary of the Northeast Utilities system. Prior to that, he was co-president of the Constellation Energy Group, the parent company of Baltimore Gas & Electric and other energy related businesses. Mr. Shivery is a director and audit committee member of Portland General Electric Company (NYSE:POR), an electrical utility company headquartered in Portland, Oregon. He is Chair of the Compensation Committee, and a member of the Executive Committee and the Nominating and Corporate Governance Committee.
Mr. Shiverys former service as the President and Chief Executive Officer of an energy company provides extensive experience managing a sizable, highly regulated business. Northeast Utilities (now known as Eversource Energy), conducts business in a large part of the region serviced by Webster, so certain variables impact both businesses similarly. Mr. Shivery also provides the Webster Board with corporate governance and executive compensation knowledge.
James C. Smith is Chairman and Chief Executive Officer of Webster and Webster Bank. Mr. Smith joined Webster Bank in 1975 and was appointed CEO of the bank and the holding company in 1987 and Chairman in 1995. He was elected President, Chief Operating Officer and a director of Webster Bank in 1982 and of the holding company at its inception in 1986. He served as President of Webster and Webster Bank until 2000, and again from 2008 through 2011. Mr. Smith serves as Vice Chairman of the Midsize Banks Coalition of America. He is a past member of the board of directors of the American Bankers Association and served as co-chairman of the ABAs American Bankers Council for midsize banks. He is a past member of the board of directors of the Financial Services Roundtable. Mr. Smith served as a member of the Federal Advisory Council, which advises the deliberations of the Federal Reserve Board of Governors, and served on the board of directors of the Federal Reserve Bank of Boston. He served on the board of directors of the Federal Home Loan Bank of Boston. He served on the executive committee of the Connecticut Bankers Association. Mr. Smith is actively engaged in community service and supports numerous civic organizations including as a member of the board of Saint Marys Health System in Waterbury, Connecticut. Mr. Smith is Chair of the Executive Committee.
Mr. Smiths position and extensive experience as Chairman and Chief Executive Officer of Webster and his day to day leadership of the Company provide him with thorough knowledge of Websters opportunities, challenges and operations.
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 (the Board). 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. Certain of such practices and policies are listed in the chart below and certain of those listed are discussed in greater detail elsewhere in this Proxy Statement.
At Webster, the roles of Chairman of the Board and principal executive officer are combined, both held by Mr. Smith. In addition, there is a lead independent director who is appointed in accordance with Websters Corporate Governance Policy, which provides that the Board shall appoint an independent director to serve as the Lead Director of the Board for a one-year term, or until a successor is appointed. The lead independent director presides over the executive sessions of independent directors and assists and advises the Chairman of the Board. During fiscal year 2015, Mr. Crawford served as the lead independent director. The Board believes that having a combined Chairman and principal executive officer, coupled with a lead independent director, is the most appropriate leadership structure for Webster, especially given Mr. Smiths long service as Chief Executive Officer and his extensive knowledge of the Company and its governance. This
structure allows Board discussions regarding performance and strategic matters to be led by the person who oversees Websters strategy and operations and establishes a single voice to speak on behalf of Webster, while the lead independent director component of the structure provides independent leadership that mitigates any real or perceived conflicts of interest.
Pursuant to the New York Stock Exchange (NYSE) listing standards, Webster is required to have a majority of independent directors on its Board. 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 Company.
The Board, 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 commercial, industrial, banking consulting, legal, accounting, charitable and legal relationships with Webster, including those relationships described under Compensation Committee Interlocks and Insider Participation and Certain Relationships on page 47 of this Proxy Statement, and on discussions with the Board.
As a result of this evaluation, the Board affirmatively determined that each of Messrs. Atwell, Becker, Crawford, Finkenzeller, Jacobi, Morse, Pettie, Shivery and Mses. Flynn and 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 Webster provides lending and other financial services to directors, their immediate family members, and their affiliated organizations in the ordinary course of business and without preferential terms or rates. The Board also considered that C. Michael Jacobis son, Gregory Jacobi, was employed by Webster Bank in 2015 as a Senior Vice President. Mr. Jacobis sons employment position with Webster Bank does not violate the independence standards contained in the NYSE rules and the Board determined that this relationship is not material and would not impair Mr. Jacobis independence, in part because Mr. Jacobis son is not an executive officer of Webster and his compensation and benefits were established in accordance with the compensation policies and practices applicable to Webster employees in comparable positions.
Mr. Smith is not considered independent because he is an executive officer of Webster and Webster Bank.
Executive Sessions of Independent Directors
In keeping with Websters Corporate Governance Policy, in 2015 the Board held 3 meetings that were limited to independent directors. The lead independent director presides over the executive sessions of independent directors.
The Board administers its risk oversight function primarily through the Risk Committee, which is described in more detail below. The Risk Committee meets frequently throughout the year and reports its findings to the full Board on an ongoing basis. In addition, the Compensation Committee and the Risk Committee review and assess risks as related to Websters compensation programs. Webster also has a Chief Risk Officer, Daniel H. Bley, who reports in that capacity to the Risk Committee, as well as two senior risk officers who report to the Chief Risk Officer.
Board and Committee Meetings
During 2015, Webster held 10 meetings of its Board. Each incumbent director attended at least 75 percent of the aggregate of (i) the total number of meetings held by the Board 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; Code of Business Conduct and Ethics and Corporate Governance Guidelines
The Board 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 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 and qualification guidelines for board members. The Board 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 Websters Code of Conduct. The training reinforces Websters core values and Websters commitment to full compliance with applicable laws and regulations. You can find links to these materials on the Companys 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 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 has appointed an Audit Committee that oversees the Companys 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 Companys 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 Companys website at: www.wbst.com. During 2015, the Audit Committee held 5 meetings. The members of the Audit Committee currently are Ms. Osar (Chair) and Messrs. Crawford, Finkenzeller, Pettie, and Ms. Flynn. 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 has determined that each of the members of the Audit Committee is financially literate and that Ms. Osar and Mr. Crawford qualify as audit committee financial experts, as that term is defined in Item 407(d)(5) of Regulation S-K.
The Board has appointed a Compensation Committee. During 2015, the Compensation Committee held 4 meetings. Compensation Committee meetings are attended by Websters Chief Executive Officer (CEO) and President, other than while their 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 during 2015, see Compensation Discussion and Analysis. The members of the Compensation Committee currently are Messrs. Shivery (Chair), Atwell, Becker, Finkenzeller and Morse. 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 Companys subsidiary, Webster Bank. A copy of the Compensation Committees charter is available on the Companys website at: www.wbst.com. The Compensation Committee may delegate to its chairperson or any other Compensation Committee member such power and authority as the Compensation Committee deems appropriate, except such powers and authorities required by law to be exercised by the whole Compensation Committee or subcommittee thereof.
Pursuant to the Compensation Committees charter, among other responsibilities, the Committee is charged with annually reviewing and approving annual bonus arrangements and long term incentive compensation paid to the CEO. The Committee reviews and makes recommendations to the Board with respect to the annual base salary, and severance and/or change in control or similar agreements/provisions, if any, for the CEO; annually determining such compensation and benefits for the members of the Companys Executive Management Committee other than the CEO; annually recommending to the Board the content of the annual performance evaluation for the CEO and reviewing performance evaluations for all members of the Executive Management Committee; administering and implementing the Companys performance based incentive plans; reviewing the talent management and succession planning processes to ensure that there is a pool of qualified candidates to fill future Executive Management Committee positions; and reviewing and approving on a periodic basis the Companys employee stock ownership guidelines. The Committee also reviews and makes recommendations to the Board with respect to director compensation.
For information on the role of compensation consultants determining or recommending the amount or form of executive or director compensation, see Compensation Discussion and Analysis Compensation Consultant.
The Board has appointed an Executive Committee that has responsibility for serving as an exploratory committee for mergers and acquisitions and to serve as an ad hoc committee as needed. The Executive Committee did not meet during 2015. The members of the Executive Committee are Messrs. Smith (Chair), Crawford, Pettie, Shivery and Ms. Osar.
Nominating and Corporate Governance Committee
The Board has appointed a Nominating and Corporate Governance Committee that has overall responsibility for recommending corporate governance process and board operations for the Company. 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 and the shareholders. A copy of the Nominating and Corporate Governance Committees charter is available on the Companys website at: www.wbst.com. During 2015, the Nominating and Corporate Governance Committee held 3 meetings. The members of the Nominating and Corporate Governance Committee are Messrs. Crawford (Chair), Morse, Shivery and Ms. Flynn. Each member of the Nominating and Corporate Governance Committee meets the independence requirements of the rules of the NYSE.
The Board has appointed a Risk Committee whose primary function is to assist the Board in fulfilling its oversight responsibilities regarding the Companys enterprise risk management, receiving information regarding the Companys policies, procedures and practices relating to risk, and discussing material regulatory
issues, compliance matters, and emerging risks to the Company. The Risk Committee also has responsibility for overseeing managements monitoring of security issues. During 2015, the Risk Committee held 5 meetings. The members of the Risk Committee are Messrs. Pettie (Chair), Atwell, Becker, Jacobi, and Ms. Osar.
Director Qualifications and Nominations
The Board believes that it should be composed of directors with diverse experience in business and in areas that are relevant to the Company, 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. These attributes are embodied in Websters Qualification Guidelines for Board Members, which specifies that diversity is one of the factors to be considered in deciding on nominations for directors.
When considering candidates for the Board, 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. The Nominating and Corporate Governance Committee reviews and assesses the effectiveness of the Qualification Guidelines for Board Members periodically.
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 15, 2016 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 16, 2016. 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 2015. 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 and restricted stock 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 2015, each non-employee director of Webster received an annual retainer of $32,000. In addition, non-employee directors of Webster received 1,666 shares of restricted stock, which vest incrementally over three years.
In addition, except as set forth below, each non-employee director received $1,200 for each Webster or Webster Bank Board meeting attended, $1,200 for each committee meeting attended, and $600 for each telephonic Webster or Webster Bank Board and committee meeting called by either Webster or Webster Bank. 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. Non-employee directors receive $1,000 for a committee meeting if it is held on the same day as a Board meeting and $1,000 for a second committee meeting if more than one committee meeting is held on the same day. Webster also reimburses directors for reasonable travel expenses incurred in connection with attending Board meetings.
In 2015, the Lead Director received an additional annual retainer of $22,500. The Chair of the Audit Committee received an annual additional retainer of $15,000, the Chair of the Compensation Committee and the Chair of the Risk Committee received additional annual retainers of $10,000 and the Chair of the Nominating and Corporate Governance Committee received an additional annual retainer of $7,500.
Webster stock ownership guidelines require non-employee directors to own Webster Common Stock with a market value equal to at least $200,000. Effective April 2016, this will increase to $300,000. 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 Companys 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
754 Chapel Street
New Haven, Connecticut 06510
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 attended the annual meeting.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Named Executive Officers of Webster Financial Corporation
The following table sets forth information regarding the Chief Executive Officer, the Chief Financial Officer, and the three other most highly compensated executive officers who were serving on December 31, 2015 (the named executive officers or NEOs).
Provided below is biographical information for each of Websters NEOs, other than Mr. Smith. For information regarding Mr. Smith, see Election of Directors-Information as to Nominees.
Joseph J. Savage is Executive Vice Chairman of Webster and Webster Bank. He joined Webster in April 2002 as Executive Vice President, Commercial Banking and was promoted to President of Webster Bank and elected to the board of directors of Webster Bank in January of 2014. He was appointed to his current position in October 2015. 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 serves as a director of the Travelers Championship Committee. He serves on the board of The Bushnell and The Connecticut Bankers Association. He was also the chair of the 2013-14 United Way Campaign for United Way of Central and Northeastern Connecticut.
John R. Ciulla is President of Webster and Webster Bank. Mr. Ciulla joined Webster in 2004 and has served in a variety of management positions at the Company, including Chief Credit Risk Officer and Senior Vice President, Commercial Banking, where he was responsible for several business units. He was promoted from Executive Vice President and Head of Middle Market Banking to lead Commercial Banking in January 2014 and President in October 2015. Prior to joining Webster, Mr. Ciulla was Managing Director of the Bank of New York, where he worked from 1997 to 2004. He is the Vice Chairman of the board of the Connecticut Business & Industry Association and serves on the board of the Business Council of Fairfield County.
Glenn I. MacInnes is Executive Vice President and Chief Financial Officer of Webster and Webster Bank. He joined Webster in 2011. Prior to that, Mr. MacInnes was Chief Financial Officer at New Alliance Bancshares for two years and was employed for 11 years at Citigroup in a series of positions, including deputy CFO for Citibank North America and CFO of Citibank (West) FSB. Mr. MacInnes serves on the board of Wellmore Behavioral Health, Inc.
Charles L. Wilkins is Executive Vice President, Head of HSA Bank of Webster and Webster Bank. He joined Webster in 2014. Prior to joining Webster, he was president of his own consulting practice specializing in healthcare and financial services from June 2012 to December 2013. Prior to this, Mr. Wilkins was General Manager and Chief Executive Officer of OptumHealth Financial Services, a division of UnitedHealth Group in Minnesota from August 2007 to June 2012. He is an active volunteer with the United Way, Special Olympics and Crossroad Career Network.
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 Companys Form 10-K for its 2015 fiscal year, and the Board has approved the recommendation.
Charles W. Shivery (Chair)
William L. Atwell
Joel S. Becker
Robert A. Finkenzeller
Laurence C. Morse
Compensation Discussion and Analysis
The Compensation Discussion and Analysis (CD&A) discusses in detail the 2015 executive compensation program for the Companys NEOs. The Compensation Committee (Committee) recommends the base salary for the Chief Executive Officer (CEO) to the Board of Directors, approves the annual cash incentive and long term equity-based incentives (LTI) for the CEO, and approves the compensation for Websters other NEOs. Non-NEO members of the Executive Management Committee are also compensated under the same compensation program.
At the annual meeting of shareholders held on April 23, 2015, Webster held an advisory vote on executive compensation. Approximately 98% of the shares of Webster Common Stock that were voted on the proposal were voted for the approval of the compensation of the NEOs as discussed in Websters 2015 Proxy Statement. The Committee considers the outcome of the vote when determining compensation policies and setting NEO compensation and believes that the results show strong support for Websters compensation policies and procedures. No changes in the overall structure of the programs were made in 2015.
Highlights of 2015 Operating Performance
Webster reported record net income driven by higher revenue, disciplined expense management, and further improvement in asset quality. Strong loan demand boosted core revenue for another year of positive growth. Webster continued to invest in strategies that are expected to increase Economic Profit1 over time.
Highlights Summary (results versus prior year)
Objectives of Compensation Program
Websters executive compensation program is designed to attract, engage and retain qualified executives and to reward actions and results that the Committee and Board of Directors believe will increase Economic Profit and maximize shareholder return. Special attention is given to ensuring that compensation plans do not encourage NEOs or other executives to take unnecessary or excessive risks.
Websters executive compensation program is highly performance based and closely aligns total compensation with achievement of Websters financial and strategic goals. A meaningful portion of total compensation is variable and tied to future shareholder return, thereby rewarding NEOs and other executives for pursuing strategies that are expected to increase Economic Profit over time.
The compensation program has four primary objectives:
Compensation Best Practices
The Committee annually reviews best practices in executive compensation and governance and continues to enhance our policies and practices, which include the following:
2015 Compensation and Governance Best Practices
Setting 2015 Compensation
In February 2015, the Committee reviewed all elements of compensation for NEOs and approved the compensation structure consistent with the objectives outlined above. Total direct compensation comprises base salary, annual cash incentive and LTI. The annual cash incentive rewards current year performance, while the LTI aligns the NEOs interests with the long term goals and performance of the Company. LTI grants made in February 2016, based in part on NEOs 2015 performance, consisted of a 75/25 mix of performance based shares and time-based restricted stock. Performance shares have a three-year performance period and time-based restricted stock has a three-year vesting schedule of one-third on each anniversary date of the grant. The 2016 LTI grants are disclosed in the non-required 2016 Long Term Incentive Compensation table on page 31 and the two-year supplemental Summary Compensation Table on page 36.
For 2015, the Committee approved total compensation for NEOs which is somewhat higher than compensation for 2014, given the continuing improvement in financial and credit-related results, considerable progress toward achieving strategic goals, and financial performance that exceeded the Peer Groups performance. The Committee intended that total direct compensation should be commensurate with that of like institutions with similar performance. Given 2015 financial performance that was slightly below plan yet well above the peer median, the Committee intended that total direct compensation (including the February 2016 LTI grants based on 2015 performance) be equal to or somewhat higher than median Peer Group compensation.
In carrying out its responsibilities, the Committee engages McLagan, an independent compensation consultant, to offer market perspectives on annual pay, current executive compensation trends and compensation programs currently in place at Webster. The consultant also provides insight into regulatory issues affecting compensation. The Committee has the authority to hire and terminate the consultant and determine the nature and scope of the consultants assignments. The Committee has engaged McLagan since June 2010. The Committee reviewed the work performed by McLagan and, under SEC and NYSE regulations, determined that the work did not create a conflict of interest.
McLagan provided the Committee ongoing insights relating to trends in executive compensation in the banking sector. At the direction of the Committee, McLagan reviewed all elements of compensation for the NEOs and other executive officers and made recommendations with regard to plan design. McLagan also reviewed an analysis of Websters 2015 performance to date (through the first three quarters of 2015) relative to peers and opined on managements proposals to the Committee regarding 2015 executive compensation. McLagan attended the majority of Committee meetings and in each one of those meetings had the opportunity to meet with the Committee in executive session. The Committee weighs the consultants perspective as part of its decision-making process. The Committee communicates compensation decisions directly to management. The Committee utilized market context and recommendations from McLagan when determining the amount and form of compensation paid to Websters executive officers and directors during 2015.
Compensation Peer Group
The Committee regularly uses proxy information for the Peer Group to review annually the compensation of Websters NEOs relative to comparable positions. This review is supplemented by available market survey data. The Committee may also use comparisons to the Peer Group to consider other market practices relevant to the scope of the NEOs responsibilities. This may include, for example, change in control provisions and stock ownership guidelines.
In 2015, the Committee considered actual and, where available, target compensation data from the Peer Group. This data was presented by McLagan and contributed to an assessment of the competitiveness of actual and target pay for Webster NEOs.
The Committee reviews the composition of the Peer Group annually with the assistance of McLagan with the objective of maintaining a group of peer banks that individually and collectively represent suitable comparators for compensation-related analyses. Suitability is defined using a number of factors, including size, scope, business mix and geographic focus. Scope measures include total assets, net revenue, market capitalization and number of employees. Business mix is reflected by an analysis of loan composition (consumer, real estate, commercial and construction) and revenue composition (sources and proportion of net interest income and non-interest income). Banks with a geographic focus outside the continental United States are excluded regardless of the appropriateness of their scope and business mix. In 2015, McLagan, at the request of the Committee, prepared an evaluation of our Peer Group and determined that our current Peer Group met the criteria stated above and no action was needed. While Susquehanna Bancshares had announced an acquisition by BB&T in 2015, the closing occurred after the Peer Group was affirmed. The Committee approved the recommendation and identified the 13 companies listed below as the Peer Group for 2015:
Given the acquisition of Susquehanna Bancshares and City National in 2015, their financial performance data is no longer available. They are not included in the annual cash incentive peer performance calculation; however, they are counted in the lowest quartile in the TSR calculation, which is standard market practice when a peer gets acquired.
Elements of 2015 Compensation
Websters compensation program has three basic elements: base salary, annual cash incentive and LTI. All elements of compensation are reviewed annually by the Committee, both separately and in aggregate, to ensure that the total amount of compensation is within appropriate competitive parameters based on data from independent sources and based on the performance of the Company and NEOs. The program is intended to provide NEOs with a compensation opportunity commensurate with persons with similar duties and responsibilities at other financial institutions with comparable performance. In determining levels of NEOs overall compensation, the Committee also considers the qualifications and experience of the respective officer, Websters size and complexity of operations and, to a certain extent, the compensation paid to other persons employed by the Company. The Committee uses external data as input for the Committees analysis and to obtain a general understanding of current compensation practices rather than strict rules for establishing compensation. A meaningful portion of pay is tied to financial and strategic performance. Consequently, actual compensation received will vary from targeted compensation.
In early 2015, the Committee engaged McLagan to provide an analysis of Websters total compensation as well as the individual components compared to the Peer Group and McLagans 2014 Top Management Survey. This data contributed to an assessment of the competitiveness of actual and target pay for Websters NEOs. Based on the findings, the Committee set the components of pay and the weight of each component creating a structure that reflects Websters objectives for compensation outlined above while allowing individual variations based on job scope, tenure, retention risk, and other factors relevant to the Committee.
The chart below breaks down total compensation by element, target and pay mix of each component by NEO for the program approved in February 2015. For purposes of this table, pay mix represents the percentage of total direct compensation represented by each component.
Annual salary is the only fixed component of Websters executive compensation program. In setting salary, the Committee looks at current pay practices, Peer Group comparisons and general market analysis in consultation with its compensation consultant, McLagan. The Committee then establishes salaries that are competitive to the Peer Group for similar positions. The salaries are reviewed on an annual basis by the Committee.
In the case of a change in role, an officers new responsibilities, external pay practices, internal equity, past performance and experience are all considered in determining whether a change in salary is warranted.
As part of the Committees annual salary review, salaries were determined to be reasonably competitive when compared with the actual proxy data of the Peer Group and benchmark survey information. In 2015, two of the NEOs received an adjustment to base salary as a result of this review. Mr. Smiths salary was increased from $883,544 to $925,000. Mr. Ciullas salary was increased from $364,944 to $450,000 and, as of October 28, from $450,000 to $480,000, which reflects his promotional increase from Executive Vice President, Commercial Banking to President of Webster and Webster Bank.
Annual Cash Incentive CompensationPlan Overview
Annual cash incentive compensation is variable based on performance and ties a significant portion of the NEOs compensation to achievement of the Companys annual financial goals and to financial performance relative to the Peer Group. Measurements for the plan are approved annually by the Committee. For 2015, target incentives were set for each of the NEOs between 25% and 28% of total compensation. The plan is designed so that the weighted average performance for the financial measures must exceed a predetermined threshold before a payout can be made.
The plan is structured to calculate incentives based on two Primary Components:
The two Primary Components are weighted based on each NEOs responsibilities. The weighting of the Primary Components is shown in the chart below:
CEO Discretion Adjustment for Individual Performance
Based on the CEOs assessment of each NEOs individual performance measured against specific performance objectives, the CEO may use discretion to determine a positive or negative adjustment to the annual cash award. Additionally, the CEO in consultation with the Chief Risk Officer considers potential adjustments based on each NEOs record of identifying, managing and mitigating risk, including an assessment of outcomes in the areas of compliance, operating risk, credit, audit findings or regulatory citing, or other contributions that should be taken into account.
Annual Cash Incentive Scoring
Corporate Component - The Corporate Component is determined by calculating a weighted performance score against four pre-established financial measures (Financial Performance). The resulting score may then be modified up or down at the Committees discretion by up to 20% based on performance against those four pre-established financial measures relative to Websters Peer Group. In 2015 the Committee made a 2.1% positive adjustment for financial performance in the 65th percentile of the Peer Group. The Committee has discretion to make adjustments for extraordinary, unusual or non-recurring items. There were adjustments made in the pre-tax pre-provision income and ROE targets to reflect the appropriate treatment of the amortization of the intangible asset due to the acquisition of JP Morgan Chases HSA business. Scores below 50% on an individual measure are reduced to zero and a total weighted score below 50% on the four goals in the aggregate earns no payout.
The Corporate Component rating generates a potential funding of 0% to 150% of target. A score of 100% would pay out at target. There is an aggregate threshold score of approximately 70%, which generates a payout of 50% of target, below which no payout is earned.
Financial Performance - Websters 2015 results compared to plan and to 2014 are set forth in the table below.
Performance Relative to Peer Group - The Committee has discretion to adjust the weighted score within the Corporate Component by 20% plus or minus of target based on Websters performance relative to its Peer Group against the same four measures. Due to the acquisitions of Susquehanna Bancshares and City National, and their financial performance data no longer being available, they were not included in the Peer Group comparison for 2015. The table below shows Websters performance relative to the eleven remaining companies in the Peer Group:
Final Corporate Component - The Committee recognized Websters continued strong performance relative to the Peer Group and determined that a positive adjustment of 2.1% relative to the Peer Group was appropriate. This compares to a 2.2% positive adjustment in 2014.
The Corporate Component is then calculated by taking the Financial Performance score of 92.9% and applying the upward adjustment of 2.1% for Performance Relative to Peer Group for a final score of 95.0% of target. There were no other adjustments made.
Line of Business Component - Given Mr. Ciullas responsibilities as Head of the Commercial Banking business segment and Mr. Wilkins as Head of the HSA Bank business segment, 60% of each NEOs target bonus is payable based on the financial results of his Line of Business and on results relative to strategic initiatives. The results of Commercial Banking and HSA Bank are noted below:
Mr. Ciulla led the Commercial Banking segment to a record year in which it achieved solid revenue growth and strong year-over-year performance in several key categories resulting in a Line of Business score of 95.6%. Strong loan volume offset continuing pressure on spreads caused by the lower than anticipated interest rate environment, while credit metrics slightly underperformed plan. Credit quality remained strong with commercial classified, non-performing loans and net charge offs within established risk tolerance levels. The Commercial Banking segment delivered $105.6 million in Net Income and a 14.9% Return on Allocated Capital. All five Commercial business units once again delivered positive net income. Commercial Banking continued to generate earnings in excess of the cost of capital and reported solid Economic Profit. Fueled by record loan originations of $3.0 billion, the commercial loan portfolio grew $950 million (+14.5%) to $7.5 billion. Loan growth was evident across all business units and across all geographies, with particular strength in Middle Market banking ($556 million (+18%)) and Commercial Real Estate ($204 million (+9%)), two areas that remain a strategic focus. In addition to core operating relationships, transaction account balances of $2.0 billion represent 64.1% of total commercial deposits, up from 63.7% a year ago. The disciplined deposit pricing strategy with respect to non-transactional accounts continues to yield positive results. Commercial Bankings Treasury and Payment Solutions Group continued to invest and enhance its capabilities to help clients manage cash flow, while driving higher Non-Interest Income. In February, 2016, Webster was awarded two additional Greenwich Excellence awards for client satisfaction for 2015, evidencing its continuing successful focus on high service quality and relationship banking.
Mr. Wilkins led the HSA Bank segment through a year of dramatic growth and change in which it more than doubled accounts, deposits and revenue resulting in a Line of Business score of 124.2%. The growth is a reflection of the successful execution of the business segments strategy to upgrade its technology and data processing platform, add notional products, enhance capabilities, and expand distribution through carriers and large employers. During the year, HSA Bank completed the implementation and integration of a new processing platform and converted over 1,500,000 accounts to the new experience. In addition, HSA Bank closed on a transaction in January to purchase the JP Morgan Chase HSA portfolio adding approximately 829,000 accounts and over $1.4 billion in deposits including relationships with two national health plan partners. The acquisition and strong organic growth drove a 154% increase in accounts (to 1.75 million), and a 108% increase in deposit balances (to $3.8 billion) year-over-year. As a result, interest income grew 89% to $73 million and fee income increased 125% to $64 million leading to an increase in net revenue of 104% to $138 million and an increase in pre-provision net revenue of 115% to $57 million. HSA Bank has executed the system and portfolio conversions to date with quality and efficiency causing minimal disruption to customers and partners. HSA Bank is well positioned to capitalize on this success in 2016.
The chart below summarizes each NEOs performance for 2015:
CEO Discretion Based on Individual Performance
The individual performance is determined through the annual review process as part of the Company-wide performance management process. Each NEO is evaluated based on achievement of individual performance objectives which include strategic goals, personal behavior, risk management, regulatory compliance, and people leadership. The Committee evaluates the CEO, and the CEO evaluates the other NEOs in consultation with the Committee.
Total 2015 Annual Cash Incentive Compensation - Upon completing scoring of the two Primary Components (Corporate, and Line of Business), the scores are applied to the CEOs and each NEOs annual cash incentive target based on the weightings in the Weight of Primary Component Table on page 24 to calculate the award. The Committee retains discretion to adjust the CEOs calculated annual cash incentive award. The CEO retains discretion, in consultation with the Committee, to adjust the NEOs calculated annual cash incentive awards. A thorough review of risk management across the company, including the areas of regulatory, internal audit, credit and operating risk, compliance and Sarbanes-Oxley (SOX) controls resulted in adjustments to Messrs. MacInnes and Wilkins incentives at the discretion of the CEO. No other adjustments were made. The final tabulations for annual cash incentive compensation are set forth below.
2013 Performance Shares Paid in 2016
In 2013, Performance Shares were granted to executives, including the NEOs except for Mr. Wilkins who was not an employee at that time. These had a three-year performance period ending December 31, 2015. 50% of the payout was based on the average of Websters ROE calculated annually each year during the three-year period and the other 50% was based on relative TSR against peers at the end of three-years. Payout ranges were set for both metrics with a threshold level set at 50% payout and maximum performance at 200% payout. The actual results for the 2013 Performance Shares was a payout of 145.7%.
2015 Long-Term Incentive Compensation Granted in February 2016 Plan Overview
Following a market review in late 2013 against the Peer Group and in consideration of certain emerging trends in LTI practices, including the declining usage of stock options in the market, it was decided to cease the practice of granting stock options and to replace a portion of that grant with time-vested restricted shares, while increasing the portion of performance based restricted stock (Performance Shares) as a portion of LTI awards. Accordingly, the Board approved the Committees recommendation to increase the weighting of Performance Shares as a portion of LTI from 60% to 75%, consistent with Websters pay-for-performance compensation philosophy, and to grant 25% of LTI in the form of time-vested restricted shares. The Committee believes that increasing the portion of Performance Shares and replacing the balance of stock options with restricted shares, coupled with its decision to reduce the maximum Performance Share payout to 150% from 200%, ensures that our compensation programs are closely aligned with shareholders interests and do not encourage excessive risk taking.
The Committee may increase or decrease the CEOs LTI or the other NEOs LTI based on a variety of factors including the Companys prior year performance against financial and strategic goals. The Committee determines the recommended grant for the CEO and considers the CEOs recommendation for the other NEOs.
Long Term Incentive Vehicles: Webster awarded two forms of LTI grants, performance shares and restricted stock as displayed in the table below:
Performance Shares: Performance Shares vest at the conclusion of the three-year performance period and the Committee certifies the results based 50% on Company three-year total shareholder return relative to Websters Peer Group and 50% on the three-year average return on equity compared to plan. Performance must meet threshold levels or the shares are forfeited.
The Company does not vest performance based restricted stock for performance below threshold. A threshold level of performance must be met for each metric in order for payment to be earned. For Total Shareholder Return, threshold performance is the 31st percentile of our Peer Group and for ROE, threshold performance is 83% of target. Once threshold performance is achieved, actual awards will be interpolated between threshold and 150% of target based on performance relative to market, below which there is no payout. As noted above, beginning with 2014 awards, the maximum funding payout was reduced to 150% of target, from 200%, consistent with the Committees goal to ensure our compensation programs do not encourage excessive risk taking.
2016 Long Term Incentive Grant - The February 2016 LTI grants were made in the form of 75% Performance Shares and 25% time-vested restricted stock, as described above, based in part on each NEOs 2015 performance and granted based on the NEOs 2015 base pay and LTI target percent. The Committee approved grants at 100% of that target for Mr. Smith and, based on Mr. Smiths recommendation at 100% of target for Messrs. Savage, Ciulla, MacInnes and Wilkins. The individual performance of each NEO on which the February 2016 grants were based is described in detail beginning on page 28.
The 2016 grants are shown in two non-required tables below for the purpose of setting forth clearly the compensation earned for 2015 performance. The first table is 2016 Long Term Annual Incentive Compensation based on 2015 performance and the second is the two-year supplemental Summary Compensation Table. Note that grants made in 2016, even though made in part based on 2015 performance, are not reflected in the required Summary Compensation Table on page 36 and will be reflected in next years Summary Compensation Table.
The chart below shows total direct compensation approved by the Committee for 2015 and 2014 performance. LTI grants made in February 2016 are based in part on 2015 performance and are reflected in 2015 Total Direct Compensation. LTI grants made in February 2015 are based in part on 2014 performance and are reflected in 2014 Total Direct Compensation. Although the 2016 grants will be discussed in next years CD&A, we have determined to voluntarily disclose the grants in the table set forth below under year 2015 Total Direct Compensation. The 2016 and 2015 grants were in Performance Shares and time-vested restricted stock as described above.
Two-year Supplemental Summary Compensation Table (reflects 2016 Long-Term Incentive Grants for 2015 Performance and 2015 Long-Term Incentive Grants for 2014 Performance)
2015 Long Term Incentive Grant - Similarly, LTI grants made in February 2015 were based in part on each NEOs 2014 performance and granted based on the NEOs 2015 compensation components. The Committee approved grants as shown in the chart below. The individual performance of each NEO on which the February 2015 grants were based is described in detail beginning on page 33 and is included as 2015 compensation in the required 2015 Summary Compensation Table on page 36.
NEO 2014 Performance as previously reported:
Pension Plan - Webster Bank maintains a frozen defined benefit pension plan. Webster stopped benefit accruals under the plan for all employees, including the NEOs, after December 31, 2007. The Pension Benefits section of this Proxy Statement details pension benefits for the NEOs.
401(k) Plan - Webster Bank maintains a defined contribution 401(k) plan for eligible employees, including the NEOs. All participants in the plan, including each of the NEOs, are eligible to make pre-tax contributions from 1% to 25% of their pay, up to Internal Revenue Code (IRC) limits ($18,000 in 2015). Webster Bank matches the employees contributions on a dollar for dollar basis for the first 2% of pay the employee contributes and then 50 cents on the dollar for up to the next 6% of pay the employee contributes. In addition, Webster provides transition credits ranging from 1% to 6% of pay for those employees, including NEOs, who were hired before January 1, 2007 and had reached age 35 or older on January 1, 2008. The purpose of transition credits is to help offset the impact of freezing the pension plan. A two-year vesting schedule applies to all Webster contributions. Under IRC limits, annual compensation in excess of $265,000 in 2015 may not be taken into account for determining benefits or contributions under the qualified plan. Employees who are age 50 or older by the last day of the year may contribute an additional $6,000 to the plan.
Supplemental Defined Benefit Plan - Webster Bank maintains a frozen non-qualified supplemental defined benefit plan for certain executives, including NEOs, who were participants in the pension plan. The purpose of the plan was to provide these individuals with supplemental pension benefits in excess of IRC limits for tax qualified pension plans. The plan was frozen as of December 31, 2007. Thus, service and compensation after this date are not used in calculating an NEOs benefit from the plan.
Supplemental Defined Contribution Plan - Webster Bank maintains a non-qualified supplemental defined contribution plan for certain executives, including the NEOs. This plan provides each NEO with an allocation to their supplemental 401(k) account equal to the additional match and transition credit contributions that the NEO would have received in the qualified 401(k) plan if there were no IRC compensation or deferral limits.
Non-Qualified Deferred Compensation Plan - The executive officers, including each of the NEOs, were eligible to participate in a voluntary non-qualified deferred compensation plan. The plan allowed employees at the senior vice president level and above to defer a portion of their compensation because of the statutory limits under the qualified plan. All deferrals under this plan ceased as of January 1, 2012.
The NEOs do not have employment agreements; however, Messrs. Smith, Savage, Ciulla, MacInnes and Wilkins are subject to change in control and non-competition agreements.
Other Executive Benefits
Webster offers a limited number of benefits to the NEOs 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 Companys goals. Management reviews the benefits with the Committee for consistency with Websters organizational culture and market practices. These benefits are described in footnote 5 to the Summary Compensation Table.
Websters change in control practices are designed to retain the NEOs 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 provided 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 hire by the Committee based on Company policy and competitive market information. Webster reviews the provisions of the change in control agreements annually. In 2012 and 2013, Webster amended all of the change in control agreements for the NEOs, removing the gross-up provisions and modifying the severance formula so that the bonus component is based on target bonus rather than the highest bonus in the prior three years. In 2012, Webster also amended the Stock Option Plan to provide for accelerated vesting of equity awards if a change in control occurs and the eligible individual is terminated without cause or resigns for good reason within two years following the change in control.
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 has adopted formal stock ownership guidelines for all of the executive officers, including the NEOs.
2015 Stock Ownership Guidelines
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, NEOs 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. NEOs who do not meet the guidelines further agree to hold all net Common Stock received through LTI awards until they achieve their respective ownership thresholds. As of December 31, 2015, Messrs. Smith, Savage, and MacInnes met the stock ownership guidelines. As of December 31, 2015, Messrs. Ciulla and Wilkins are making satisfactory progress toward the ownership goal.
Directors, officers and employees of Webster are prohibited from hedging their ownership of Webster securities, including through the use of options, puts, calls, short sales, futures contracts, equity swaps, collars or other derivative instruments relating to Webster securities, regardless of whether such directors, officers and employees have material non-public information about Webster. Directors and Executive Officers are prohibited from pledging their Webster securities as collateral for a loan.
Policy on Internal Revenue Code Section 162(m)
The Internal Revenue Code Section 162(m) limits the deduction available for compensation paid to the CEO and the three most highly compensated executive officers other than the chief financial officer to the extent the compensation paid to any such person exceeds $1,000,000, unless such compensation was based on performance goals determined by a Committee consisting solely of two or more non-employee directors and the performance goals are approved by the shareholders prior to payment.
Websters compensation programs are generally structured to comply with IRC Section 162(m). Where applicable, Webster will endeavor to structure compensation as exempt performance based compensation. Webster does, however, reserve the right to determine to pay compensation to the executive officers, including the CEO, which may not be deductible under Section 162(m) of the IRC.
COMPENSATION OF EXECUTIVE OFFICERS
The following tables contain certain compensation information for the CEO, the Executive Vice Chairman, the President, the Chief Financial Officer and the Executive Vice President, HSA Bank.
Summary Compensation Table
Salary, bonus, incentive payments and other compensation amounts to Websters NEOs 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 totals shown in the Summary Compensation Table includes amounts that the named executives may never receive.
Grants of Plan-Based Awards
During the fiscal year ended December 31, 2015, the following table sets out all non-equity incentive plan and equity incentive plan awards that were made to the NEOs.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth outstanding option awards and unvested stock awards held by Websters NEOs as of December 31, 2015.