UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.   )

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Preliminary Proxy Statement

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Definitive Proxy Statement

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Definitive Additional Materials

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Soliciting Material under §240.14a-12

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U.S. Bancorp

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Fee computed on table in exhibit required by Item 25(b) per Exchange Act rules 14a6(i)(1) and 0-11

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Notice of Annual Meeting of Shareholders of U.S. Bancorp

By Order of the Board of Directors

Laura F. Bednarski
Corporate Secretary

March 8, 2022

 

 

Proxy statement highlights

​	Proposal				​	​	Board recommendation	​	​	For more information	​
​	Proposal 1 –	​	​	The election of the 12 director nominees named in the proxy statement	​	​	“FOR” all nominees	​	​	Page 8	​
​	Proposal 2 –	​	​	The ratification of the selection of Ernst & Young LLP as our independent auditor for the 2022 fiscal year	​	​	“FOR”	​	​	Page 65	​
​	Proposal 3 –	​	​	An advisory vote to approve the compensation of our executives disclosed in the proxy statement	​	​	“FOR”	​	​	Page 66	​

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Internet www.proxyvote.com

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For more information about how to cast your vote, go to page 69.

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For more information about meeting admission and questions, go to page 70.

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Proxy statement highlights

 

Proxy statement highlights

 

Proxy statement highlights

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For more information about our board and nominees, go to page 8.

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Proxy statement highlights

 

Proxy statement highlights

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Board independence

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Board accountability

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Shareholder rights and engagement

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Board effectiveness

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Director/shareholder alignment

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For more information about corporate governance, go to page 17.

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Proposal 1 — Election of directors

Proposal 1 — Election of directors

Our Board of Directors (the Board) currently has 13 members. All directors are elected annually to one-year terms. Twelve of our current directors have been nominated for election by the Board to hold office until the 2023 annual meeting and the election of their successors. Karen S. Lynch is currently serving as a director but is not standing for re-election at the 2022 annual meeting.

All of the nominees currently serve on our Board. Each nominee has previously been elected by the shareholders. The Board has determined that, except for Andrew Cecere, our Chairman, President and Chief Executive Officer, each nominee for election as a director at the annual meeting is independent from U.S. Bancorp as discussed later in this proxy statement under “Corporate Governance — Director Independence.”

Director selection and nomination considerations

Director nominee selection process

The selection process for first-time director candidates includes the following steps:

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identification of one or more desired profiles for director candidates based on the most recent assessment of the skill sets represented on the Board compared to the Board’s needs, as well as feedback received from the Board evaluation process;

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identification of candidates by the Governance Committee based upon information provided by a director search firm, suggestions from current directors and executive officers, and any recommendations received from shareholders and other sources;

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interviews of candidates by the Lead Director and other directors;

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reports presented to the Board by the Governance Committee on the candidates and selection process;

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recommendations made by the Governance Committee; and

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election by the Board or formal nomination by the Board for inclusion in the slate of directors at the annual meeting.

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Director candidates recommended by shareholders are given the same consideration as candidates suggested by a search firm, directors or executive officers. A shareholder seeking to recommend a prospective candidate for the Governance Committee’s consideration should submit the candidate’s name and sufficient written information about the candidate to permit a determination by the Governance Committee of whether the candidate meets the director selection criteria set forth in our Corporate Governance Guidelines. Recommendations should be sent to the Chair of the Governance Committee in care of the Corporate Secretary of U.S. Bancorp at the address listed on page 74 of this proxy statement.

Commitment to Board diversity

Our company is committed to diversity, equity and inclusion. Our Board is focused on diversity within its membership in order to benefit from a variety of perspectives, experiences and skill sets in exercising its oversight role. The Board’s commitment to diversity is reflected in our Corporate Governance Guidelines, which require that any director search firm used to identify external candidates for a Board vacancy will be requested to present a diverse slate of candidates.

Board refreshment and nomination considerations

Our Governance Committee continuously assesses the evolving opportunities and challenges facing our company in order to align the Board’s composition with our company’s leadership needs and strategic direction. The Governance Committee evaluates the composition of the Board against the company’s needs every year, which culminates in the process of nominating new and incumbent directors.

The Governance Committee’s decision to renominate an incumbent director is informed by the director’s past attendance, participation in the work of the Board and overall contribution to the Board, as assessed in the annual Board evaluation process. The Board’s commitment to refreshment can require candid conversations with individual directors when the Governance Committee has determined that a different Board composition would increase the Board’s effectiveness. As a result of the Board evaluation and skills-to-strategy alignment processes, directors may decide or be asked not to stand for re-election at the next annual meeting. When a new director is sought, the Governance Committee considers the following factors:

 

Proposal 1 — Election of directors

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Professional skills and qualifications: When considering the skills and backgrounds desirable in future Board members, the Governance Committee identifies the professional experience and skill sets represented on the Board and compares them to the set of skills that the Committee believes is important to have represented among the directors at any given time in light of the company’s current strategy, risks and opportunities. Any gaps become focus areas for director search efforts.

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The Governance Committee has identified certain skills, experiences and professional qualifications that are important to be represented on the Board for strong collective oversight of the company’s business and strategy. These skills and qualifications, along with the number of our nominees who possess them and the ways these experiences contribute to the Board’s collective oversight of the development and execution of the company’s strategy, are as follows:

 

Proposal 1 — Election of directors

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Personal qualities: The Governance Committee will only consider individuals as candidates for director who possess the highest personal and professional ethics and integrity, and who are committed to representing the long-term interests of all our shareholders. Directors must be able to work in a collegial manner with persons of different education, business and cultural backgrounds.

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Diversity: Our Governance Committee regularly reviews the composition of the Board in light of the backgrounds, industries, skills, professional experience, geographic communities, gender, race, ethnicity and other personal qualities and attributes represented by our current members. The Governance Committee incorporates this broad view of diversity into its director nomination process and is committed to ensuring that the Board’s composition as a whole appropriately reflects the current and anticipated needs of the Board and our company. The Governance Committee actively seeks women and people of color as candidates in every search effort.

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Capacity: Serving on the board of a large financial institution requires a significant commitment of time and energy, and directors must be willing and able to devote sufficient attention to carrying out their duties and responsibilities effectively. The Governance Committee will consider the professional and other demands placed on candidates, including service on the boards of other public or private companies. Unless the Board determines that a director’s service to our company would not be impaired, a director may not serve on more than three other boards of public companies in addition to our Board, and a director who serves as the CEO of a public company may not serve on more than two other boards of public companies in addition to our Board.

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Tenure and refreshment: Our Governance Committee believes that it is important to maintain a balance of tenure on the Board to benefit from the business, industry and governance experience of longer-serving directors and the fresh perspectives contributed by new directors, while recognizing the value of continuity as Board composition changes. Our Governance Committee aims to have a measured rate of Board refreshment.

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Retirement and other considerations for incumbent directors: In addition to the factors stated above, the Governance Committee will evaluate any director’s continued service on the Board for appropriateness in each of the following circumstances: the director has a change in employment or other major responsibilities, an employee director ceases to be a company employee, and the director has reached the age of 72 since the last meeting of shareholders at which the director was elected.

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2022 nominees for director

Each of the director nominees named below has agreed to serve as a director if elected. Proxies may not be voted for more than 12 nominees. If, for any reason, any nominee becomes unable to serve before the election, the persons named as proxies will vote your shares for a substitute nominee selected by the Board of Directors. Alternatively, the Board of Directors may choose to reduce the number of directors that are nominated for election. In addition, as described below under “Majority Vote Standard for Election of Directors,” each of the nominees has tendered his or her contingent resignation as a director in accordance with our Corporate Governance Guidelines, to be effective if he or she fails to receive a majority of the votes cast in an uncontested election and the Board accepts the tendered resignation.

 

Proposal 1 — Election of directors

Included below is certain information that the director nominees have provided about themselves, as well as additional information that the Board considered in nominating them.

   

   

 

Proposal 1 — Election of directors

   

   

 

Proposal 1 — Election of directors

   

   

 

Proposal 1 — Election of directors

   

   

 

Proposal 1 — Election of directors

   

   

 

Proposal 1 — Election of directors

   

   

 

Corporate governance

Corporate governance

Our Board of Directors and management are dedicated to exemplary corporate governance. Good corporate governance is vital to our continued success. Our Board of Directors has adopted Corporate Governance Guidelines to provide a corporate governance framework for our directors and management to effectively pursue our objectives for the benefit of our shareholders. The Board reviews and updates these guidelines and the charters of the Board committees at least annually in response to evolving best practices and business needs, as well as the results of annual Board and committee evaluations. Our Corporate Governance Guidelines can be found at usbank.com by clicking on “About us”, “Investor relations”, “Corporate Governance” and then “Governance documents.”

Director independence

Our Board of Directors has determined that each of the following directors, comprising all of our current non-employee directors, has no material relationship with U.S. Bancorp and is independent: Warner L. Baxter, Dorothy J. Bridges, Elizabeth L. Buse, Kimberly N. Ellison-Taylor, Kimberly J. Harris, Roland A. Hernandez, Olivia F. Kirtley, Karen S. Lynch, Richard P. McKenney, Yusuf I. Mehdi, John P. Wiehoff and Scott W. Wine. Andrew Cecere is not independent because he is an executive officer of U.S. Bancorp.

Our Board has adopted a set of standards in our Corporate Governance Guidelines to assist it in assessing the independence of each of our non-employee directors. A director of U.S. Bancorp who meets the independence qualifications of the New York Stock Exchange (the NYSE) listing standards may be deemed “independent” by the Board of Directors after consideration of the relationships between U.S. Bancorp or any of its affiliates and the director or any of his or her immediate family members or other related parties. Our Board deems the following relationships to be categorically immaterial such that they will not, by themselves, affect an independence determination:

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a relationship between our company and an organization of which the director or a member of his or her immediate family is an executive officer if that role does not constitute that person’s principal occupation;

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an ordinary banking relationship for services readily available from other large financial institutions;

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employment by our company of a member of the director’s immediate family if that person’s annual compensation does not exceed $120,000; and

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a relationship between our company and an organization with which the director or a member of his or her immediate family is affiliated if  (a) the relationship arises in the ordinary course of both parties’ operations and (b) the aggregate annual amount involved does not exceed $120,000.

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The only relationships between U.S. Bancorp and our directors or the directors’ related interests that were considered by the Board when assessing the independence of our non-employee directors are the relationships between U.S. Bancorp and each of Microsoft Corporation, a corporation with which our director Yusuf I. Mehdi is affiliated, and Oracle Corporation, a corporation with which our director Kimberly N. Ellison-Taylor was affiliated during part of 2021.

The Board determined that these relationships, which are described later in this proxy statement under the heading “Related Person Transactions,” do not or did not impair Mr. Mehdi’s or Ms. Ellison-Taylor’s independence. This determination was based on the Board’s conclusion that the amounts involved in transactions between U.S. Bancorp and Microsoft or Oracle, as the case may be, are immaterial to Microsoft’s and Oracle’s gross revenues, respectively, and that the relationships had no unique characteristics that could influence Mr. Mehdi’s or Ms. Ellison-Taylor’s impartial judgment as a director of U.S. Bancorp.

 

Corporate governance

Board leadership structure

Board leadership policies and practices

Our Board believes that a strong, independent Board of Directors is critical to effective oversight of management. The Board carefully considers the important issue of the best independent leadership structure for the Board, and maintains a flexible policy regarding the issue of whether the position of Chairman should be held by an independent director. At least annually, the Board reviews the Board’s and company’s needs and the leadership attributes of its directors and executives to determine whether our company is best served at that particular time by having the CEO or another director hold the position of Chairman.

In order to provide strong independent Board leadership when the position of Chairman is not held by an independent director, the independent directors elect a Lead Director with the substantial leadership responsibilities detailed below. The Lead Director is elected annually upon the recommendation of the Governance Committee, with the expectation that he or she will generally serve three, and may serve up to five, consecutive terms.

In addition to strong independent leadership of the full Board, each of the Audit Committee, Governance Committee, and Compensation and Human Resources Committee is composed solely of independent directors. Independent directors, therefore, oversee critical, risk-sensitive matters such as the quality and integrity of our financial statements; the compensation of our executive officers, including the CEO; the nomination of directors; and the evaluation of the Board, its committees, and its members. Each of the remaining committees, aside from the Executive Committee, is chaired by an independent director. The full Board and each of its committees meet in executive session on a regular basis.

Current leadership structure

Andrew Cecere, our President and Chief Executive Officer, became Chairman of the Board on the date of the 2018 annual meeting. Olivia F. Kirtley has served as the Board’s independent Lead Director since our 2020 annual meeting.

Chairman

The independent directors believe that Mr. Cecere is the member of the Board best suited to contribute to long-term shareholder value by serving as Chairman because he has the knowledge, expertise and experience to understand and clearly articulate to the Board the opportunities and risks facing our company and to lead discussions on important matters affecting our business.

Lead Director

Ms. Kirtley brings deep business and board leadership experience to her role as Lead Director of our Board. As a corporate governance consultant and faculty member of The Conference Board Directors’ Institute, she has a particular strength in understanding current corporate governance issues. She has served as Chair of the Audit and Risk Management Committees, and she is currently a member of the Compensation and Human Resources, Governance and Executive Committees.

 

Corporate governance

Board meetings and committees

The Board of Directors conducts its business through meetings of the Board and the following standing committees: Audit, Capital Planning, Compensation and Human Resources, Governance, Public Responsibility, Risk Management, and Executive. The standing committees report on their deliberations and actions at each full Board meeting. Each of the standing committees has the authority to engage outside experts, advisers and counsel to the extent it considers appropriate to assist the committee in its work. Each of the standing committees has adopted and operates under a written charter.

The independent directors meet in executive session (without the CEO or any other member of management present) at the end of each regularly scheduled Board meeting and may also meet in executive session at any other time. The Lead Director presides over these executive sessions. During each committee meeting, the committees have the opportunity to hold executive sessions without members of management present.

The Board of Directors held eleven meetings during 2021. Each director attended at least 75% of the total meetings of the Board and Board committees on which he or she served during the year. The average attendance rate of all directors at Board and Board committee meetings in 2021 was 98%. Directors are expected to attend all meetings of shareholders. All directors serving at the time attended the 2021 annual meeting.

 

Corporate governance

Committee responsibilities

The charter of each of our standing committees fully describes that committee’s responsibilities. These charters can be found on our website at usbank.com by clicking on “About us”, “Investor relations”, “Corporate Governance” and then “Board committees,” and then clicking on the name of the applicable committee. The following summary highlights the committees’ key areas of oversight.

Corporate governance

 

Corporate governance

Committee member qualifications

All of the Audit Committee members meet the independence and experience requirements of the NYSE and the Securities and Exchange Commission (the SEC). As part of those requirements, our Board of Directors has determined that each member of the Audit Committee is financially literate. All of the members of the Compensation and Human Resources, Governance, and Public Responsibility Committees also meet the independence requirements of the NYSE, including, with respect to the Compensation and Human Resources Committee members, the NYSE’s independence requirements specific to members of compensation committees.

The Audit Committee charter generally prohibits Audit Committee members from serving on more than two other public company audit committees. Currently, no Audit Committee member exceeds this limitation. At all times, one or more members of our Audit Committee possess the education or experience required to qualify as an “audit committee financial expert” as defined by the SEC, and one or more members of our Risk Management Committee have experience identifying, assessing and managing the risk exposures of large, complex financial firms, in accordance with rules promulgated by the Federal Reserve Board.

Majority vote standard for election of directors

Our bylaws provide that in uncontested elections, a nominee for director will be elected to the Board if the number of votes cast “FOR” the nominee’s election exceeds the number of votes cast “AGAINST” that nominee’s election (votes to “ABSTAIN” have no effect on the election of a director). The voting standard for directors in a contested election is a plurality of the votes cast at the meeting.

Our Corporate Governance Guidelines provide that director nominees must submit a contingent resignation in writing to the Governance Committee, which becomes effective if the director fails to receive a sufficient number of votes for re-election at the annual meeting of shareholders and the Board accepts the resignation. The Board will nominate for election or re-election as director only candidates who have tendered such a contingent resignation.

Our Corporate Governance Guidelines further provide that if an incumbent director fails to receive the required vote for re-election, our Governance Committee will act within 90 days after certification of the shareholder vote to determine whether to accept the director’s resignation, and will submit a recommendation for prompt consideration by the Board. The Board expects the director whose resignation is under consideration to abstain from participating in any decision regarding his or her resignation. The Governance Committee and the Board may consider any factors they deem relevant in deciding whether to accept a director’s resignation.

 

Corporate governance

Board performance evaluations

Our Governance Committee conducts an annual assessment of the Board’s performance to determine whether the Board, its committees and its members are functioning effectively and to identify areas for growth and improvement. The annual process is as follows:

Based on director feedback received over the last several years through this annual evaluation process and through less formal channels, including feedback provided by directors at meetings, management has adjusted the content and style of its written materials and oral presentations for committee meetings. In addition, the Governance Committee has received information about the skills and qualifications that directors would like future Board or committee members to have. Director feedback has also led to discussion of how to appropriately balance oversight responsibility for critical matters affecting our company among the Board and its committees, and how committee action is most effectively communicated to the full Board.

 

Corporate governance

Director education

It is important for our directors to continually receive additional information and training that will help them to effectively oversee the management of our company. We have implemented a robust director education program that begins with in-depth training covering our industry and each of our lines of business, and that continues with special education sessions throughout the year that highlight current business, industry, regulatory and governance topics presented by internal and external experts. Directors are encouraged to attend continuing training sessions offered by outside providers on topics related to general corporate governance as well as specialized areas in risk management, audit, compensation and other matters, at the company’s expense.

Shareholder engagement

We value the views of our investors and welcome feedback from them. Our standard engagement practice is to initiate conversations with our largest investors each fall. In the fall of 2021, we reached out to our top 30 shareholders and invited them to talk to us about corporate governance, our COVID-19 response, our ESG practices, executive compensation and disclosure matters, and any other topics they wished to discuss. We also consider requests for engagement from shareholders outside of the fall outreach effort.

Management shares the feedback received from shareholders with the Governance Committee, and feedback that relates to matters that are specifically overseen by a different Board committee are also provided to those committees. The committees take the views expressed by our shareholders into consideration when making decisions. Management also considers shareholder feedback about disclosure practices when preparing our company’s public filings.

Conduct

We are deeply committed to maintaining the highest standards of ethical conduct that reflect our purpose and core values. In recognition of that commitment, for the seventh consecutive year, we were named one of the World’s Most Ethical Companies® in 2021 by the Ethisphere Institute.

Our Code of Ethics and Business Conduct, which is available on our website at usbank.com by clicking on “About us”, “Investor relations”, “Corporate Governance” and then “Governance documents”, outlines the responsibilities of every employee and director to our customers and business partners, our shareholders, our community and each other.

Succession planning and management development

A primary responsibility of the Board is planning for CEO succession, as well as overseeing succession planning for other senior management positions. The Board’s process targets the building of enhanced management depth and skills, considers continuity and stability within our company, and responds to our company’s evolving needs and changing circumstances. To achieve these goals, the executive talent development and succession planning process is integrated into the Board’s annual activities.

The Governance Committee has established a CEO succession planning process that considers the profile and skills most critical to leadership of the company, includes ongoing evaluation of a number of potential internal and external successor candidates, and addresses emergency, temporary scenarios as well as long-term succession. The CEO makes available to the Board his or her recommendations and evaluations of potential internal successors, along with a review of any development plans recommended for those individuals. The Compensation and Human Resources Committee is responsible for reviewing succession planning for executive officer positions other than the CEO.

 

Corporate governance

Risk oversight by the Board of Directors

Board-level oversight of risk management structure

As part of its responsibility to oversee the management, business and strategy of our company, the Board of Directors has approved a Risk Management Framework that establishes governance and risk management requirements for all risk-taking activities. This framework includes company-level and business unit Risk Appetite Statements that set boundaries for the types and amount of risk that may be undertaken in pursuing business objectives and initiatives.

The Board of Directors oversees management’s performance relative to the Risk Management Framework, Risk Appetite Statements, and other policy requirements. While management is responsible for defining the various risks facing our company, formulating risk management policies and procedures, and managing risk exposures on a day-to-day basis, the Board’s responsibility is to oversee our company’s risk management processes by informing itself about our material risks and evaluating whether management has reasonable risk management and control processes in place to address those material risks.

The Board’s risk oversight responsibility is primarily carried out through its standing committees, as follows:

The Risk Management, Audit, and Capital Planning Committees meet annually in joint session to give each committee the opportunity to review the risk areas primarily overseen by the other, and all Board members attend this meeting to benefit from the discussion. Finally, at each meeting of the full Board of Directors, each committee gives a detailed report of the matters it discussed and conclusions it reached during its recent meetings.

 

Corporate governance

Our approach to ESG

We are investing in a long-term approach to address ESG challenges through an integrated strategy. In 2021, we created an ESG Program Office to develop and manage our ESG strategy. In addition to the creation of the program office, we enhanced our governance and oversight of ESG through the creation of an ESG focused senior operating committee, dedicated to the integration of ESG activities into our business strategy.

Managing our business in an environmentally and socially sustainable manner is an important component of corporate responsibility and critical to the success of our company. Our Board and management have shown a commitment to these matters by:

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launching the U.S. Bank Access Commitment, a long-term series of initiatives to address the persistent racial wealth gap and increase wealth building opportunities; and

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announcing several company-wide commitments to address the impacts of climate change on our business, customers and communities, including:

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setting a goal to achieve Net Zero greenhouse gas emissions (GHG) by 2050;

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setting a goal to source 100% renewable electricity within our operations by 2025 and joining RE100;

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setting an environmental finance goal of  $50 billion by 2030;

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aligning disclosures with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations; and

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joining the Partnership for Carbon Accounting Financials (PCAF), committing to measure and disclose financed emissions using PCAF standards.

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Corporate governance

Access to our ESG reports is provided for informational purposes only and none of the ESG reports, nor any other information included on our website, is incorporated by reference or otherwise made a part of this proxy statement.

The COVID-19 pandemic

The COVID-19 pandemic is profoundly affecting our customers, our employees and the communities we serve. At the onset of the pandemic, we activated our crisis management plans, which are tested annually under the oversight of the Board. The Board was highly engaged in overseeing management’s pandemic response, and increased its communications and interactions with management as the crisis developed and as the company adjusted its operations to provide critical financial support, through both private and government programs, to our communities.

As the crisis continues to evolve, our customers rely on us to provide essential financial services, and our employees rely on us to provide a safe working environment. The Board has continued to actively monitor management’s response to this crisis. Management and the Board of Directors will continue to actively oversee our response and the risks related to the COVID-19 pandemic.

Management-level risk structure underlying Board oversight

Each Board committee carries out its risk management responsibilities using reports from management containing information relevant to the risk areas under that committee’s oversight. The committees must therefore be confident that an appropriate risk monitoring structure is in place at the management level in order to be provided accurate and useful informational reports. The management-level risk oversight structure is robust. Our company relies on comprehensive risk management processes to identify, aggregate and measure, manage, and monitor risks. This system enables the Board of Directors to establish a mutual understanding with management of the effectiveness of our company’s risk management practices and capabilities, to review our company’s risk exposure and to elevate certain key risks for discussion at the Board level. A framework exists to account for the introduction of emerging risks or any increase in risks routinely taken, which would either be largely controlled by the risk limits in place or identified through the frequent risk reporting that occurs throughout our company.

The Executive Risk Committee, which is chaired by our Chief Risk Officer and includes the CEO and other members of the executive management team, oversees execution against the Risk Management Framework and company-level Risk Appetite Statement. The Executive Risk Committee meets monthly, and more frequently when circumstances merit, to provide executive management oversight of our Risk Management Framework, assess appropriate levels of risk exposure and actions that may be required for identified risks to be adequately mitigated, promote effective management of all risk categories, and foster the establishment and maintenance of an effective risk culture. The Executive Risk Committee members manage large, sophisticated groups within our company that are dedicated to controlling and monitoring risk to the levels deemed appropriate by the Board of Directors and executive management. These individuals, together with our company’s Controller, Treasurer and others, also provide the Board’s committees with the information the committees need and request in order to carry out their oversight responsibilities.

The Executive Risk Committee focuses on current and emerging risks, including strategic, reputational and conduct risks, directing timely and comprehensive actions. The following senior operating committees have also been established to support the work of the Executive Risk Committee, each responsible for overseeing a specified category of risk:

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the Asset and Liability Management Committee ensures that the policies, guidelines and practices established to manage our funding and investment activities, interest rate risk, market risk, and liquidity risk are followed;

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the Capital Management Operating Committee provides oversight of our programs related to stress testing, capital planning and capital adequacy, and resolution and recovery, as well as oversight of our compliance with capital regulation;

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the Compliance Risk Management Committee provides direction regarding the management of compliance risk to our company’s business lines and risk management programs and shares institutional knowledge regarding compliance risk management and mitigation across our company;

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Corporate governance

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the Disclosure Committee assists the CEO and the CFO in fulfilling their responsibilities for oversight of the accuracy and timeliness of the disclosures made by our company;

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the Enterprise Financial Crimes Compliance Operating Committee is responsible for the management and implementation of our company’s enterprise financial crimes program across business lines to ensure a consistent control infrastructure and culture of compliance throughout our company;

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the Enterprise IT Governance Committee oversees the distributed enterprise information technology environment and ensures that delivery of the company’s information technology services is aligned with our priorities and risk appetite;

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the Executive Credit Management Group Committee ensures that products that have credit risk are supported by sound credit practices; reviews asset quality, trends, portfolio performance statistics and loss forecasts; and reviews and adjusts credit policies accordingly;

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the Incentive Review Committee reviews and evaluates our company’s incentive compensation programs and policies for risk sensitivity and mitigation;

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the Mergers and Acquisitions Committee is responsible for the consideration and approval of all mergers, acquisitions and divestitures by our company;

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the Operational Risk Committee provides direction and oversight of our company’s operational risk management framework and corporate control programs, including cybersecurity and other significant operational risk events, and mitigation strategies;

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the Strategic Investment Committee is responsible for our company’s strategic investments, including capital expenditures, corporate real estate commitments and other multi-year contractual commitments, as well as our company’s organic growth initiatives; and

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the Trust Management Committee provides oversight of our fiduciary activities.

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In addition, the Environmental, Social and Governance Committee is a sub-committee of the Executive Risk Committee and provides clarity, direction, accountability, and oversight of ESG topics managed as part of existing operations, programs and processes.

Our Board and management-level committees are supported by a “three lines of defense” model for establishing effective checks and balances. The first line of defense, primarily the revenue-generating business lines, manages risks in conformity with established limits and policy requirements. In turn, business leaders and their risk officers establish programs to ensure conformity with these limits and policy requirements. The second line of defense, primarily the Chief Risk Officer’s organization, but also including the policy and oversight activities of corporate support functions, translates risk appetite and strategy into actionable risk limits and policies. The second line of defense monitors the first line of defense’s compliance with limits and policies, and provides reporting and escalation of emerging risks and other concerns to senior management and the Risk Management Committee of the Board of Directors. The third line of defense, internal audit, is responsible for providing the Audit Committee and senior management with independent assessment and assurance regarding the effectiveness of our company’s governance, risk management and control processes.

 

Certain relationships and related transactions

Certain relationships and related transactions

Review of related person transactions

The Board has adopted a written Related Person Transactions Policy for the review, evaluation and approval or ratification of transactions between our company and its related persons. “Related persons” under this policy include our directors, director nominees, executive officers, holders of more than 5% of our common stock, and their respective immediate family members. “Immediate family members” include children, stepchildren, parents, stepparents, spouses, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law, and any person (other than a tenant or employee) sharing the person’s household.

Except as described below, the policy requires the Governance Committee of the Board to review and evaluate and either approve or disapprove all transactions or series of transactions in which:

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the amount involved will, or may be expected to, exceed $120,000 in any fiscal year;

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our company is or will be a participant; and

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a related person has a direct or indirect interest.

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The Board has determined that the Governance Committee does not need to review or approve certain transactions even if the amount involved will exceed $120,000, including the following transactions:

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lending and other financial services transactions or relationships that are in the ordinary course of business and non-preferential, and comply with applicable laws;

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transactions in which the related person’s interest derives solely from his or her services as a director of, and/or his or her ownership of less than ten percent of the equity interest (other than a general partner interest) in, another corporation or organization that is a party to the transaction;

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transactions in which the related person’s interest derives solely from his or her ownership of a class of equity securities of our company and all holders of that class of equity securities received the same benefit on a pro rata basis;

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transactions where the rates or charges involved are determined by competitive bids, or that involve the rendering of services as a common or contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority; and

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employment and compensation arrangements for any executive officer and compensation arrangements for any director, provided that such arrangements have been approved by the Compensation and Human Resources Committee.

​

When considering whether to approve or ratify a transaction, the Governance Committee will consider facts and circumstances that it deems relevant to its determination, including:

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the nature and extent of the related person’s interest in the transaction;

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whether the transaction is on substantially the same terms as those prevailing at the time for comparable transactions with persons not affiliated with our company;

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the materiality of the transaction to each party;

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whether our company’s Code of Ethics and Business Conduct could be implicated, including whether the transaction would create a conflict of interest or appearance of a conflict of interest;

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whether the transaction is in the best interest of our company; and

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in the case of a non-employee director, whether the transaction would impair his or her independence.

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No director is allowed to participate in the deliberations or vote on the approval or ratification of a transaction if that director is a related person with respect to the transaction under review. On an annual basis, the Governance Committee assesses all ongoing relationships with related persons to confirm that the transactions are still appropriate.

 

Certain relationships and related transactions

Related person transactions

Lending transactions

During 2021, U.S. Bancorp and our banking and broker-dealer subsidiaries engaged in transactions in the ordinary course of business with some of our directors, executive officers and the persons that we know beneficially owned more than 5% of our common stock on December 31, 2021, and the entities with which they are associated. All loans and loan commitments and any transactions involving other financial products and services in connection with these transactions were made in the ordinary course of business, on substantially the same terms, including current interest rates and collateral, as those prevailing at the time for comparable transactions with others not related to our banking and broker-dealer subsidiaries and did not involve more than the normal risk of collectability or present other unfavorable features.

Transactions with entities affiliated with directors or executive officers

Our director Kimberly Ellison-Taylor served as the Executive Director of Finance Thought Leadership for Oracle Corporation until April 2021. During 2021, we paid approximately $8 million to Oracle for software, hardware and IT technical support services, including backend database, middleware and end-user applications. Oracle’s annual revenue was approximately $40 billion for fiscal year 2021.

Our director Yusuf I. Mehdi currently serves as a Corporate Vice President of Microsoft Corporation. During 2021, we paid approximately $43 million to Microsoft for software and services in the ordinary course of business, including desktop software, server and cloud enrollment services, and support and development of products. Additionally, we have entered into a relationship with Microsoft to purchase certain cloud computing services. The relationship consists of a cloud services contract with a 6-year term and a variable payment amount based on our cloud service usage, and a 3-year implementation and migration contract with fixed costs that are tied to achievement of milestones and paid over the course of the contract. The aggregate total payments over the term of the cloud services relationship are expected to be between $200 and $300 million. No amounts were paid under these agreements in 2021. Microsoft’s annual revenue was approximately $168 billion for fiscal year 2021.

These transactions were conducted at an arm’s length in the ordinary course of business by each party to the transactions. As discussed above under the heading “Director Independence,” the Board of Directors has determined that the amounts involved in the transactions between U.S. Bancorp and Oracle or Microsoft, as the case may be, are immaterial to Oracle’s and Microsoft’s gross revenues, and that the relationships had no unique characteristics that could influence Ms. Ellison-Taylor’s or Mr. Mehdi’s impartial judgment, and that Ms. Ellison-Taylor and Mr. Mehdi are both independent directors.

Compensation discussion and analysis

Compensation discussion and analysis

This section explains how we compensated the individuals who served as our CEO or CFO for 2021 and each of our three other most highly compensated executive officers for 2021 (our named executive officers, or NEOs).

The NEOs are as follows for 2021:

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Andrew Cecere, Chairman, President and Chief Executive Officer;

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Terrance R. Dolan, Vice Chair and Chief Financial Officer;

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Jeffry H. von Gillern, Vice Chair, Technology and Operations Services;

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Shailesh M. Kotwal, Vice Chair, Payment Services; and

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Gunjan Kedia, Vice Chair, Wealth Management and Investment Services.

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Reference Guide

 

Compensation discussion and analysis

 

Compensation discussion and analysis

​

 

Compensation discussion and analysis

Philosophy and objectives of our executive compensation program

Compensation program objective

The Committee has structured our executive compensation program to create long-term shareholder value by attracting and retaining talented leaders and rewarding them for top performance. The Committee achieves this objective through a compensation program that:

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links a significant portion of total compensation to corporate and business line performance metrics, which we believe will create long-term shareholder value;

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provides total compensation that is market competitive, permitting us to hire and retain high-caliber individuals;

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emphasizes long-term, stock-based compensation, encouraging our executive officers to think and act as long-term shareholders;

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subjects equity awards to multi-year performance, vesting and retention requirements that enhance executive ownership and encourage a long-term view of corporate achievement; and

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encourages an appropriate sensitivity to risk on the part of senior management, which protects long-term shareholder interests.

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Pay for performance

We operate in a highly complex business environment and compete with both well-established financial institutions and, increasingly, with non-banks offering products and services that traditionally were offered only by banks. Our long-term business objective is to maximize shareholder value by consistently delivering superior returns on common equity that exceed the cost of equity. If we are successful in achieving this objective, the Committee believes the results will benefit our shareholders.

Accordingly, our executive compensation program is designed to reward our executives for achieving annual and long-term financial results that further our long-term business objectives.

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The annual cash incentive plan rewards performance relative to corporate EPS and business line pretax income targets established at the beginning of the fiscal year, with consideration of qualitative factors to support alignment with additional corporate priorities.

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NEOs earn PRSUs based on achievement of ROE targets over a three-year period, which directly measure the return generated by the company on shareholders’ investment.

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The ultimate value of both the PRSUs and RSUs earned by our NEOs is dependent on our long-term financial success as reflected in the price of U.S. Bancorp stock.

​

At the same time, the Committee carefully weighs the risks inherent in our executive compensation program against the goals of the program and the company’s risk appetite. Additional discussion of the risk oversight undertaken by the Committee can be found below under “Decision Making and Policies — Risk Considerations.”

Pay levels

When determining executive compensation levels each year, the Committee considers the value of each compensation element as well as the value of the total direct compensation package. Key factors that inform pay levels include the following:

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a review of market data and the competitive landscape, which includes the complexity and size of U.S. Bancorp relative to its peer institutions and the comparability of an executive’s responsibilities to corresponding roles at peer institutions;

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the performance, experience and expertise of the executive, including expanded scope of responsibilities when applicable;

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internal pay equity within the executive officer group;

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the company’s strategy and performance;

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compensation actions applicable to the broader employee base; and

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key talent succession planning and retention considerations.

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Compensation discussion and analysis

Compensation elements

Our NEOs’ total direct compensation consists of three elements: base salary, annual cash incentive compensation, and long-term incentive compensation comprising 60% PRSUs and 40% RSUs. Each of these elements of total direct compensation is described in detail below.

NEOs are also eligible to receive health benefits under the same plans and on the same terms available to our other employees, matching contributions to their U.S. Bank 401(k) Savings Plan accounts on the same basis as our other employees, and retirement benefits that are earned over their career with the company. None of our NEOs have employment or standalone change-in-control agreements. NEOs do not receive gross-up payments for tax liabilities resulting from perquisites, except in relation to relocation expenses.

Base salary

Base salary is the only component of the NEOs’ total direct compensation that is not at risk. The Committee considers the salary of executive officers relative to comparable executives in our compensation peer group and may make market-based adjustments as it deems appropriate. Salaries can also be adjusted to reflect experience and tenure in a position, internal pay equity within the executive officer group, promotions or increased scope of responsibilities, individual performance, and retention considerations.

2021 salary actions: The Committee made no changes to the NEOs’ base salaries in 2021.

Annual cash incentive awards

How we determine our NEOs’ annual cash incentive awards

All executive officers have the opportunity to earn annual cash incentive awards that reflect their responsibility levels and reward achievement of corporate and business line goals. The awards made to our NEOs for 2021 performance were granted under our Annual Executive Incentive Plan (the AEIP).

The formula for calculating each NEO’s Annual Cash Incentive Payout consists of the following elements:

▶

Each NEO’s Target Award Amount, which is set by the Committee as a percentage of his or her base salary (Target Award Percentage);

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The Final Bonus Funding Percentage applicable to each NEO, which is calculated based on a combination of corporate EPS and business line pretax income performance and subject to a qualitative review by the Committee; and

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The Committee’s assessment of each NEO’s Individual Performance and Risk Sensitivity, which can increase or decrease the value of the Bonus Funding Percentage applied to each NEO’s Target Award Amount (but in no event may individual payouts exceed 200% of an NEO’s Target Award Amount).

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Compensation discussion and analysis

Setting the Target Award Amounts

The Target Award Amount for each executive officer — which is expressed as a percentage of the officer’s base salary — is based on the officer’s level of responsibility within the organization as well as market-based and internal pay equity considerations. The Committee considers the Target Award Amount to be an important component of total compensation that is established to provide an appropriate balance between short-term, cash-based compensation and long-term, equity-based compensation in each NEO’s total compensation package.

2021 target award actions: The Committee did not make any adjustments to the Target Award Percentages in 2021.

Calculating the Final Bonus Funding Percentage

The Final Bonus Funding Percentage is calculated using two evenly weighted factors:

▶

the Corporate Result, which is based on EPS performance; and

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the Business Line Result, which is based on business line pretax income performance.

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The Committee believes that EPS and business line pretax income are appropriate performance metrics for the executive officers’ annual cash incentive awards for the following reasons:

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EPS is a common metric used by investors to evaluate the profitability of a company, showing the earnings (net income) we make on each outstanding share of common stock;

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a focus on EPS supports alignment of the interests of the executive officers with those of shareholders;

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EPS captures elements of corporate performance that are beyond those of the individual operating business lines, such as corporate funding policies and the management and use of capital;

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the business line pretax income targets are the fundamental drivers of the company’s revenues and income before taxes; and

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the EPS and pretax income targets are aligned with annual financial plan targets, which the Board and management have assessed for achievability; accordingly, the targets provide incentives to take appropriate amounts of risk to achieve those goals.

​

In addition, both EPS and business line pretax income are used across the organization for cash bonus payout calculations, and using these measures in executive officer incentive award calculations supports alignment with their areas of responsibility.

Both the Corporate and Business Line Results are assessed relative to targets included in our company’s annual financial plan. The Board establishes these financial targets at the beginning of the fiscal year with the intent that they represent challenging, yet achievable, goals.

 

Compensation discussion and analysis

The Final Bonus Funding Percentage is calculated as follows:

▶

Corporate Result: The percentage by which actual corporate EPS differs from the EPS target is multiplied by a leverage factor to magnify the positive or negative variation from actual results, yielding the Corporate Result. A leverage factor of two is applied to corporate achievement of EPS goals between 80% and 120% of target, and for any amount by which corporate achievement of EPS goals is less than 80% or more than 120%, the leverage factor is 1:1. Prior to 2021, a leverage factor of 4:1 was applied to the full extent to which actual results differed from target results. In 2021, the Committee adjusted the leverage factor to provide a more balanced alignment with performance, and the change in leverage applies equally both above and below target.

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Business Line Result: A payout component is calculated for each of our 17 business lines based on the percentage by which the business line’s pretax income varies from target, using the same leverage factor as is applied to corporate performance. For executives with leadership responsibilities for the entire company, including Messrs. Cecere and Dolan, or for those with a corporate-wide support function, including Mr. von Gillern, the Business Line Result is based on the weighted average of the pretax income results of all the company’s business lines. For executives who lead a revenue-producing group, including Mr. Kotwal and Ms. Kedia, the Business Line Result is based on the weighted average pretax income results of the business lines within the group that the executive leads.

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Each of the Corporate Result and the Business Line Result is multiplied by 50% and then added together to arrive at the Formulaic Bonus Funding Percentage for each Named Executive Officer.

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The Committee performs a Qualitative Review of the Formulaic Bonus Funding Percentage, which includes a variety of broader performance factors to be considered when evaluating performance, as described below. The results of the Committee’s assessment of these additional performance factors allows the Committee to adjust the formulaic bonus calculation to create greater alignment with overall organizational performance if appropriate.

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2021 Corporate Result: The Corporate Result was 150.6%, which was calculated as follows:

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The target level of EPS set by the Committee for 2021 was $3.14.

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The company reported EPS results of  $5.03, which the Committee adjusted downward by $0.93 for purposes of the Corporate Result to account for loan loss reserve variation and the notable items described below.

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The resulting adjusted EPS value used to calculate the Corporate Result was $4.10.

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The Corporate Result of 150.6% was the outcome after applying the leverage factor to the percentage difference between target and actual EPS results.

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For purposes of computing the Formulaic Bonus Funding Percentage for the Corporate Result, we adjust EPS to remove the impact of any variation in our loan loss reserve build or release on an after-tax basis, while including net charge-offs to capture actual credit losses experienced. The Committee established this approach at the beginning of 2020 in connection with our adoption of the Current Expected Credit Losses (CECL) accounting standard in January 2020, which created

 

Compensation discussion and analysis

significant potential accounting volatility and uncertainty with our loan loss reserve that would be dependent upon a number of judgmental factors and economic assumptions. For 2021, this calculation resulted in a downward adjustment to reported EPS of  $0.51.

The Committee also considers whether EPS should be further adjusted from reported amounts to normalize any notable items and whether other normalizing adjustments should be made to business line pretax income results. The 2021 EPS result was adjusted downward by $0.42 to eliminate the positive impact of certain material items, including income from the accelerated timing of loan forgiveness from the government’s pandemic-relief Paycheck Protection Program, securities gains from repositioning the investment portfolio, and reductions in certain corporate-level pandemic-related liabilities as the economic environment improved, for a total EPS adjustment of  $0.93.

2021 Business Line Results: For 2021, pretax income results, inclusive of the regular adjustments described above, ranged from 98.0% to 202.6% of target performance across our company’s 17 revenue-producing business lines. These results generated Business Line Results of 96% to 200% following application of the leverage factor and the 0% floor and 200% ceiling. The weighted average Business Line Result of all the company’s business lines was 134.7%.

For the Business Line Result, pretax income includes a component for changes in the loan loss reserve driven by loan balances and changes in loan portfolio credit quality. The Committee adjusts these results so that the effect of any variation in our loan loss reserve build or release driven by such changes in loan portfolio credit quality is reduced by 50%. The Committee believes that this adjustment serves to align bonus funding with changes in credit quality while reducing some of the volatility caused by variable judgmental factors. The Committee applies these adjustments for loan loss reserve variation consistently, whether the ultimate impact is positive or negative, and believes that such adjustments maintain accountability for credit quality.

The Business Line Results were as follows for the NEOs:

The Qualitative Review

In 2021, the Committee implemented a qualitative review process into the cash bonus funding determination, which allows the Committee to consider the appropriateness of and need for any adjustments to the formulaic bonus calculation to ensure greater alignment with overall organizational performance. The Qualitative Review is based on the Committee’s assessment of factors such as the company’s progress against key strategic initiatives, additional relevant financial performance metrics on an absolute or relative basis, macroeconomic environment, and considerations related to ESG matters including human capital management.

2021 Qualitative Review actions: Based on its holistic consideration of corporate performance, the Committee determined not to make any adjustments to the formulaic bonus funding outcome for 2021 based on the qualitative review.

Factoring in individual performance and risk sensitivity

The Committee considers the performance of the business lines managed by each executive officer and that executive officer’s individual performance during the year. The Committee also uses a formal “risk scorecard” assessment, which can result in downward or upward adjustments to the Bonus Funding Percentage to reflect the executives’ demonstrated sensitivity to risk.

The Committee believes that it is important to retain the ability to recognize outstanding individual performance and risk mitigation in determining Annual Cash Incentive Payouts, as well as to acknowledge circumstances where individual performance improvements are suggested or where inappropriate risk-taking behaviors have occurred. Modifications to our NEOs’ Bonus Funding Percentage based on their individual performance and risk sensitivity have been used only occasionally, however, and have historically been modest in scope.

 

Compensation discussion and analysis

2021 individual performance and risk sensitivity actions: The Committee determined that each NEO’s applicable Final Bonus Funding Percentage appropriately reflected that executive’s performance and contribution to the company in 2021. Accordingly, no individual performance-based modifications were made to the NEOs’ Bonus Funding Percentages. Following an analysis of the NEOs’ risk scorecard results, the Committee did not make any risk-based modifications to the NEOs’ Bonus Funding Percentages.

2021 Annual Cash Incentive Payout results: The resulting payouts made to the NEOs in March 2022 for 2021 performance under the AEIP were as follows:

Long-term incentive awards

Establishing the structure of the equity awards

Long-term, equity-based compensation represents the most significant portion of our NEOs’ total compensation package. In 2021, 69% of our CEO’s target total direct compensation and 63% of our other NEOs’ target total direct compensation (on average) consisted of equity awards. The Committee uses equity awards to align the NEOs’ interests with those of long-term shareholders.

The Committee grants equity awards to executive officers under the U.S. Bancorp 2015 Stock Incentive Plan. In 2021, 60% of the value of each executive officer’s long-term incentive award was granted in the form of PRSUs that will cliff vest (if earned) on the third anniversary of the grant date, following a three-year performance period, and 40% was granted in the form of RSUs that vest ratably over three years from the date of grant. Cash dividends on unvested PRSUs accrue during the performance period but are only paid at vesting on shares earned, if any, by the executives.

The mix of performance-based and time-based equity vehicles, with the mix more heavily weighted toward performance-based equity, is designed to motivate achievement of financial objectives while encouraging retention and stock ownership.

Setting the value of the equity awards

Each year in January, the Committee determines the dollar value of the long-term incentive awards to be granted to the executive officers, with the grants being made on a pre-determined date in February or March. In setting each year’s award amounts, the Committee considers the relative market position of the awards and the total compensation for each executive, the proportion of each executive’s total direct compensation to be delivered as a long-term incentive award, internal pay equity, executive performance and changes in responsibility, retention considerations, and corporate performance.

2021 equity value actions: The Committee increased the value of the long-term incentive awards granted to the NEOs in 2021 to align those NEOs’ total compensation more closely with the opportunities available to executives in similar roles at companies in our peer group.

 

Compensation discussion and analysis

The company’s absolute and relative ROE results for each of the three years within the performance period are applied to the performance matrix to produce a percentage of target PRSUs results for that year. At the end of the performance period, the percentage results for the three years will be averaged to determine the percentage of target PRSUs earned and eligible to vest upon the third anniversary of the grant date.

Results of PRSUs earned 2019-2021: In February 2019, PRSUs were granted for the 2019-2021 performance period using the following ROE performance matrix:

The absolute and relative ROE performance during the three-year period was as follows:

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1.

2019 ROE results are as reported, and 2020 and 2021 ROE results include adjustments related to the impacts of the CECL accounting standard as described above. No notable items were excluded from 2020 or 2021 ROE. Reported ROE for 2020 and 2021 was 10% and 16%, respectively.

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Based on performance through the end of 2021, 113.6% of the target number of units that had been granted in February 2019 were earned, and those units vested on the third anniversary of their grant date. The number of units earned by each NEO for performance during the 2019-2021 period is reported in the Outstanding Equity Awards at 2021 Fiscal Year-End table later in this proxy statement.

2021 PRSU awards. For the PRSUs granted in February 2021 for the 2021-2023 performance period, the Committee maintained the target and upside performance goals that were used for the 2019 and 2020 PRSU awards. The Committee adjusted the absolute ROE threshold and related payout factor for retaining upper quartile peer performance to reflect the current cost of capital and greater economic volatility at the time the goals were established. These minor changes are intended to ensure continued performance and competitive alignment going forward, and are reflected in the following matrix:

 

Compensation discussion and analysis

Decision making and policies

Who is involved in making executive compensation decisions

Executive compensation policy, practices, and amounts are determined by the Committee, which is composed entirely of independent directors. The Committee has responsibility for setting each component of compensation for our CEO with the assistance and guidance of its independent compensation consultant. The Committee has retained Meridian Compensation Partners, LLC (Meridian) as its independent compensation consultant.

Our CEO and senior members of our human resources function, with the assistance of Meridian, develop initial recommendations for all components of compensation for the executive officers other than the CEO and present their recommendations to the Committee for review and approval. The Committee also annually reviews the total amount and types of compensation paid to non-employee members of the Board of Directors and recommends any changes to the independent directors for approval.

The Committee retains an independent compensation consultant to:

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provide advice regarding compensation program design, competitive practices, market trends, and peer group composition;

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provide perspectives and assist the Committee in setting the pay of our CEO;

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provide the same advisory services to the Committee, our CEO, and senior members of our human resources function regarding the compensation of the other executive officers; and

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advise the Committee on non-employee director compensation.

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Meridian does not provide any other services to our company. Following a review of the relationship between the company and its independent compensation consultant in 2021, the Committee concluded that Meridian’s work for the Committee did not raise any conflicts of interest.

How executive compensation is determined

The executive compensation outcomes described in the preceding pages are the culmination of a year’s worth of analysis and decisions made by the Committee, as follows:

 

Compensation discussion and analysis

Compensation peer group

The Committee does not “benchmark” pay to a particular market level but instead aims to establish compensation that is at a competitive level within a reasonable range of median amounts, taking into consideration an NEO’s performance, tenure in his or her position, and comparability of his or her role with corresponding roles in peer institutions. The Committee used the following group of financial services companies to perform market assessments when setting the compensation of our executive officers in 2021 (listed in descending order of assets as of December 31, 2021):

1.

Source: S&P Capital IQ based on company filings and market data; at December 31, 2021

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2.

Source: S&P Capital IQ based on company filings and market data; for the year ended December 31, 2021

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There were no changes to the 2020 peer group; accordingly, the 2021 peer group consisted of the same peer companies. The Committee selects companies for the compensation peer group that it believes represent our most meaningful competitors in the marketplace for executive talent. The Committee also reviews and uses compensation data from a large group of diversified financial services companies as an additional point of comparison. As a result of this ongoing analysis and resulting compensation adjustments, our executive compensation positioning is generally within market range, recognizing that several positions are unique to our company and do not have clear market comparisons.

 

Compensation discussion and analysis

Stock ownership and retention requirements

The Committee believes that ownership of our common stock by our executive officers directly aligns their interests with those of our other shareholders and helps balance the incentives for risk taking inherent in equity-based awards. We require our executives to hold significant amounts of company stock. We also require that they retain until retirement a substantial portion of their vested stock awards (net of shares withheld to satisfy tax obligations), even after minimum ownership levels have been met. The current ownership and retention requirements are as follows:

Vested PRSUs, all RSUs, and stock received and held after exercise of stock options are included in determining whether an executive officer satisfies his or her applicable minimum ownership level. As of December 31, 2021, all of our executive officers were in compliance with the stock ownership and retention requirements except for one executive officer who recently joined the company and will comply with our policy’s restrictions on stock dispositions until his ownership requirement is met.

Clawback and forfeiture provisions applicable to executive awards

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Clawback of paid cash awards: Under its clawback policy, the Committee will evaluate the facts and circumstances surrounding any restatement of earnings, and in its sole discretion, may adjust and recoup cash incentive amounts paid to any executive officer as it deems appropriate, if attributable to materially misleading reported earnings that require restatement.

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Forfeiture of unpaid cash awards: Payouts of annual cash incentive awards can be reduced to $0, regardless of company performance relative to plan metrics, if the executive officer has demonstrated negative personal performance that was significantly insensitive to risk during the performance period.

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Cancellation of unvested equity awards: The equity award agreements for executive officers provide that outstanding awards can be canceled if the executive’s conduct has subjected the company to significant financial, reputational or other risk through violations of company policies, laws or regulations; negligent or willful misconduct; or activity resulting in a significant or material control deficiency.

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Change-in-control provisions for executive officers

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No cash benefit: The executive officers are not entitled to receive any cash payments upon a change-in-control of our company, with or without a subsequent termination in employment, except as provided by broad-based severance plans generally available to our employees.

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No single-trigger equity acceleration: The equity award agreements for executive officers provide that a change-in-control of our company would not trigger accelerated vesting of an executive officer’s outstanding equity awards unless his or her employment was involuntarily terminated within 12 months after the change-in-control other than for cause.

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Hedging and pledging policy

The company’s Insider Trading Policy prohibits executive officers and directors of the company from hedging shares of the company’s common stock, including, but not limited to, using prepaid variable forwards, equity swaps, collars and exchange funds. The policy also prohibits executive officers and directors from pledging shares of the company’s common stock as collateral for a loan or holding the company’s common stock in a margin account.

Risk considerations

Overview: Prudent risk taking is an integral part of any business strategy, and our compensation program is not intended to encourage management decisions that completely eliminate risk. Rather, the combination of various elements in our program is designed to encourage appropriate sensitivity to risk and mitigate the potential to reward risk taking that may produce short-term results that appear in isolation to be favorable, but that may undermine the successful execution of our long-term business strategy and negatively affect shareholder value. Our compensation practices are also designed to

 

Compensation discussion and analysis

reward performance while maintaining our core commitment to customer service and ethical principles. Together with the company’s processes for strategic planning, its internal control over financial reporting and other financial and compliance policies and practices, the design of our compensation program helps to discourage management actions that demonstrate insensitivity to risk.

Role of management: As a large financial services company, we are subject to ongoing regulatory reviews of incentive compensation policies and practices. We routinely undertake a thorough risk analysis of every incentive compensation plan of the company, the individuals covered by each plan and the risks inherent in each plan’s design and implementation. We also conduct validation and back-testing activities to ensure that compensation plans are correctly risk rated, the plans are designed to adequately mitigate risk inherent therein, and the plans are administered effectively. The Incentive Review Committee was created to oversee that review and to provide more comprehensive oversight of the relationship between the various kinds of risk we manage and our company’s incentive compensation plans and programs. The Incentive Review Committee meets throughout the year and reviews and approves all company incentive plans.

The Incentive Review Committee reviews incentive plan elements such as risk controls, plan participants, performance measures, performance and payout curves or formulas, how target level performance is determined (including whether any thresholds and caps exist), how frequently payouts occur, and the mix of fixed and variable compensation that the plan delivers. The plans and programs are also reviewed from the standpoint of reasonableness (for example, how target pay levels compare to similar plans for similar employee groups at other companies, and how payout amounts relate to the results that generate the payments), how well the plans and programs are aligned with the company’s goals and objectives and with its risk appetite, and from an overall standpoint, whether these plans and programs represent an appropriate mix of short-term and long-term compensation.

As part of this review by the Incentive Review Committee, our management team, including senior risk officers and individuals from the compensation department, have identified the risks inherent in these programs and have modified plans and controls where appropriate to mitigate certain potential risks. For example, most business line incentive compensation plans with a credit component track early defaults, or defaults that occur within the first 12 months, and must include a provision that allows the company to offset future payments by the amount of the previously paid incentives related to the early default.

In addition, a “risk scorecard” assessment measuring adequacy of risk management is undertaken for senior management-level employees who have the individual ability to pose material risk to the company, including the executive officers; all employees who have credit responsibility and who participate in annual corporate cash incentive plans; and all employees who, as part of a group, can engage in risk-taking behavior that could be material to the company and who participate in annual corporate cash incentive plans. This analysis serves as the basis for annual cash incentive plan adjustments for these employees. Annually, the Incentive Review Committee also addresses risk events that pose a material adverse impact to the company or business line to determine whether an event should trigger cancellation of equity awards. The Incentive Review Committee has reviewed its process with the Compensation and Human Resources Committee and discussed the areas where compensation-related risks were being addressed by plan modifications, or were mitigated by internal controls or otherwise.

Role of the Board: The Compensation and Human Resources Committee also conducts an annual review of the compensation packages and components for the executive officers. The Committee assesses the incentives for risk taking contained in the compensation program and balances them with the other goals of the compensation program. In evaluating the incentives for risk taking in compensation plans and policies for executive officers, the Committee considered the following risk-mitigating aspects of those plans and policies:

 

Compensation discussion and analysis