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Preliminary Proxy Statement
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Learn More
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2019 Annual Report*
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https://investorrelations.discover.com/
investor-relations/financials/annual-reports/default.aspx
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* The information in the Annual Report is not incorporated by reference into, and does not form part of, this proxy statement.
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March 23, 2020
Dear Fellow Shareholder,
I cordially invite you to attend Discover Financial Services’ 2020 Annual Meeting of Shareholders to be held at 9:00 a.m., Central Time, May 14, 2020. Due to the outbreak of coronavirus (COVID-19), this year's Annual Meeting of Shareholders will be conducted entirely online. Thus, there is no in-person meeting for you to attend. All shareholders of record of our outstanding shares of common stock at the close of business on March 16, 2020 will be entitled to vote at the Annual Meeting. For more information on how to register and attend this year's Annual Meeting of Shareholders, please refer to the Questions and Answers about the Annual Meeting and Voting section which begins on page 57 of the enclosed proxy statement.
Your vote is important! Whether or not you plan to attend the Annual Meeting, please read the enclosed proxy statement and vote as soon as possible via the Internet, by telephone or, if you receive a paper Proxy Card or voting instruction form in the mail, by mailing the completed Proxy Card or voting instruction form. Using the Internet or telephone voting systems or mailing your completed Proxy Card will not prevent you from voting at the meeting if you are a shareholder of record and wish to do so.
Important information about the matters to be acted upon at the meeting is included in the notice of meeting and proxy statement. Our 2019 Annual Report contains information about our Company and its financial performance.
I am very much looking forward to our 2020 Annual Meeting of Shareholders.
Very truly yours,
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Lawrence A. Weinbach
Independent Chairman |
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This proxy statement is dated March 23, 2020 and is first being sent or made available to shareholders on or about April 1, 2020.
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Notice of 2020 Annual
Meeting of Shareholders
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Website
www.meetingcenter.io/249886235 Password DFS2020 |
Record Date
You are entitled to notice of and to vote at the meeting and at any adjournment or postponement of the meeting if you were a shareholder of record as of the close of business on March 16, 2020. |
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Items of Business
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Board Recommendation
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1
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To elect 12 members of the Board of Directors named in the Proxy Statement as nominees, each for a term of one year.
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FOR each director nominee
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To conduct an advisory, non-binding vote to approve named executive officer compensation.
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FOR
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To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2020.
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To transact any other business as may properly come before the meeting or any adjournment or postponement of the meeting.
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It is important that your shares be represented and voted at the Annual Meeting. You can vote your shares by completing and returning your Proxy Card or by voting on the Internet or by telephone. The only voting securities of the Company are shares of our common stock, $0.01 par value per share (the "Common Stock"), of which there were 306,237,974 shares outstanding as of the Record Date (excluding treasury stock). See the Questions and Answers About the Annual Meeting and Voting section beginning on page 57 for more details.
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Advance Voting Methods
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Attending the Virtual Annual Meeting
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Internet
Go to www.investorvote.com/dfs |
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Our 2020 Annual Meeting will be a virtual meeting, conducted via live audio webcast only. No physical meeting will be held. If you plan to attend the meeting virtually via the website listed above, please follow the registration instructions as outlined in Questions and Answers About the Annual Meeting and Voting section beginning on page 57 for more details.
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Telephone
Call toll free 1-800-652-VOTE (8683) within the USA, territories & Canada |
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Mail
Follow the instructions on your proxy card |
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PROPOSAL 1
Election of Directors
Our Board recommends a vote FOR each director nominee
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See Page 8 ›
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Committees
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Name
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Age
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Director Since
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AC
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C&LD
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N&G
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ROC
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JEFFREY S. ARONIN Independent
Chairman and CEO of Paragon Pharmaceutical Capital, LLC and Paragon Biosciences, LLC |
52
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2007
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MARY K. BUSH Independent
Chairman of Bush International, LLC |
71
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2007
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GREGORY C. CASE Independent
CEO of Aon plc |
57
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2007
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CANDACE H. DUNCAN Independent
Former Managing Partner KPMG LLP, Washington D.C. Metropolitan Area |
66
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2014
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JOSEPH F. EAZOR Independent
President and CEO of Conifer Health Solutions, LLC |
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2016
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CYNTHIA A. GLASSMAN Independent
Former Under Secretary for Economic Affairs U.S. Department of Commerce |
72
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2009
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ROGER C. HOCHSCHILD
CEO and President Discover Financial Services |
55
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2018
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THOMAS G. MAHERAS Independent
Managing Partner, Tegean Capital Management, LLC Partner, Iron Park Capital Management, LLC |
57
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2008
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MICHAEL H. MOSKOW Independent
Retired President and CEO Federal Reserve Bank of Chicago |
82
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2007
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MARK A. THIERER Independent
Managing Partner AssetBlue Investment Group |
60
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2013
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LAWRENCE A. WEINBACH Independent Chairman
Chairman, Great Western Products Holdings, LLC Managing Director, Yankee Hill Capital Management, LLC |
80
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2007
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JENNIFER L. WONG Independent
Chief Operating Officer Reddit, Inc. |
45
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2019
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Audit Committee
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Chairperson of the Committee
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Compensation and Leadership Development Committee
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Member of the Committee
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Nominating and Governance Committee
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Risk Oversight Committee
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Average Tenure
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Average Age
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Gender Diversity
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8.5 years
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62.8 years
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33% Female
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0-5 years
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≤ 60 years
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Female
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6-10 years
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61-70 years
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> 10 years
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> 70 years
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All Director nominees exhibit:
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As a group, our Director nominees have the following characteristics, skills, and experience:
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• Broad and relevant spectrum of experience and expertise
• A reputation for integrity
• Experience in positions with a high degree of responsibility
• Commitment to represent the interests of shareholders
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CEO or CFO
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Public Board
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Financial
Services Industry |
Technology
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Finance,
Accounting and Financial Reporting |
Government/
Regulatory |
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Risk
Management |
Corporate
Governance |
International
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Marketing
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Strategy and
Business Development |
Compensation
and Succession Planning |
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Board Independence
ü All directors are independent except CEO; Board committees are 100% independent
ü Non-Executive Board Chairman is independent
ü Executive sessions of directors held at all in-person Board meetings
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Board Performance
ü All directors attended more than 75% of the Board and their committee meetings
ü Diverse Board with mix of skills, tenure and age; 33% of our directors are women
ü Annual Board, committee and director performance evaluations
ü Director education and access to experts
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Best Practices
ü Risk aware culture overseen by a separate Risk Oversight Committee
ü Significant shareholder ownership requirements for Executives and Board
ü Longstanding commitment to sustainability
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Shareholder Rights
ü Annual election of directors with majority voting standard
ü Shareholders have proxy access with market standard conditions for director nominations
ü No supermajority voting requirements
ü Shareholders have the right to call special meetings
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PROPOSAL 2
Advisory Vote to Approve Named Executive Officer Compensation
Our Board recommends a vote FOR this Proposal
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See Page 21 ›
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Grew profit before taxes and reserves ("PBTR") 4%(1) with higher revenues offsetting higher credit losses and expenses
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Based on net income of $2,957 million, the Company achieved profit before taxes and reserves (“PBTR”) of $4,180 million(1)
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Continued solid card loan and sales growth while maintaining disciplined underwriting and line management
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The Company achieved year-over-year loan growth of 6% and card sales growth of 5% driven by existing customer spend and new account growth
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Accelerated volume growth in Payment Services, led by PULSE
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Payment Services continued to have strong volume growth of 8% year-over-year and profit before taxes ("PBT") growth of 24% year-over-year
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Strong return on equity
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The Company achieved return on equity of 26% for the full year
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Profit before taxes and reserves ("PBTR") is a non-GAAP financial measure which should be viewed in addition to, not as a substitute for, the Company's reported results. PBTR is derived by adding the increase in the allowance for loan losses of $345 million and income tax expense of $878 million to net income of $2,957 million. The Compensation and Leadership Development Committee believes that PBTR is a critical measure of the core operating performance of the business that increases focus on factors the Company's incentive-eligible employees are most able to directly impact and influence and controls for variability in significant macroeconomic impacts. Please see "Annex A" for a reconciliation of PBTR growth to net income growth calculated in accordance with GAAP.
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PROPOSAL 3
Ratify the Appointment of Deloitte & Touche LLP as Independent Auditors for 2020
Our Board recommends a vote FOR this Proposal
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See Page 49 ›
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Performance Highlights
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Executive Summary
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ANNEX A
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PROPOSAL 1
Election of Directors
The Board of Directors recommends that you vote “FOR” the election of each director nominee. Proxies solicited by our Board will be voted “FOR” the election of each nominee unless otherwise instructed.
The Board believes strong corporate governance is critical to achieving the Company’s long-term goals and maintaining the trust and confidence of investors, employees, customers, regulatory agencies, and other stakeholders. The Board oversees the Company’s business and directs its management. The non-employee directors of the Board are not involved in day-to-day operations. Instead, the Board meets periodically with management to review the Company’s executive succession plans, Annual Operating Plan (the “Annual Plan”), multi-year strategic plan and performance against such plans, risks, and business strategies. Directors also consult with management about the Company’s performance outside of formal meetings, which include opportunities for directors to have in-depth conversations with management about particular areas of the business.
All of the director nominees set forth below are standing for election at the Annual Meeting. Director nominees stand for election at each annual meeting of shareholders. Each director holds office until his or her successor has been duly elected and qualified or the director’s earlier resignation, death or removal. The nominees below are current directors of the Company, and each such nominee has indicated that he or she will serve if elected. We do not anticipate that any nominee will be unable or unwilling to stand for election, but if that happens, your proxy will be voted for another person nominated by the Board. The Board may also choose to reduce the number of directors to be elected, as permitted by our Bylaws. The experience, qualifications, attributes and skills of each of the Company’s director nominees are set forth below.
The Board believes that an effective board consists of a diverse group of individuals who bring a variety of complementary skills and experiences. The Nominating and Governance Committee and the Board consider the skills and experiences of the directors in the broader context of the Board’s overall composition, with a view toward constituting a board that has the best skill set and experience to oversee the Company’s business. As indicated below, our directors have a combined wealth of leadership experience derived from extensive service guiding large, complex organizations as executive leaders or board members, and in government. They collectively have substantive knowledge and skills applicable to our business, including in the areas of regulation, public accounting and financial reporting, finance, risk management, business development, technology, marketing, operations, strategic planning, management development and succession, compensation, corporate governance, public policy, international matters, banking, and financial services.
The Nominating and Governance Committee regularly reviews the composition of the Board and its assessment of the Board’s performance in light of our evolving business requirements to maintain a Board with the appropriate mix of skills and experiences needed for the broad set of challenges that the Company confronts. Annually, the Independent Chairman conducts individual interviews with each director that include topics such as Board and committee performance and effectiveness, leadership of the Board and committees, and the performance of individual directors. The Independent Chairman then reports the results of these interviews to the full Board during its self-evaluation. The full Board evaluates such results and also conducts an evaluation of the Independent Chairman and Chair of the Nominating and Governance Committee. In addition, each committee annually conducts a self-evaluation.
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Jeffrey S. Aronin Independent
Biography
Mr. Aronin has been chairman and chief executive officer of Paragon Pharmaceutical Capital, LLC, a global pharmaceutical development company, since 2010. He is also chairman and chief executive officer of Paragon Biosciences, LLC, an affiliated global healthcare development and biopharmaceutical investment firm. From 2010 to 2017, Mr. Aronin was also chairman and chief executive officer of Marathon Pharmaceuticals, a research-based prescription biopharmaceutical company. From 2000 to 2009, Mr. Aronin was president and chief executive officer of Ovation Pharmaceuticals Inc., a biopharmaceutical company he founded in 2000.
In addition
Mr. Aronin has experience as a chief executive officer leading several global biopharmaceutical companies. His skills include strategy and business development, finance and brand marketing. He brings valuable leadership experience and knowledge in the operations and day-to-day management of a global corporation in a regulated industry. Mr. Aronin also has experience in the structuring and execution of strategic corporate transactions, including mergers and acquisitions.
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AGE: 52
DIRECTOR SINCE: 2007
OTHER CURRENT PUBLIC COMPANY BOARDS: None
COMMITTEES: Compensation and Leadership Development
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Mary K. Bush Independent
Biography
Ms. Bush has served as the chairman of Bush International, LLC, a financial and business strategy advisory firm, since 1991. The firm advises U.S. companies and foreign governments on financial markets, banking and strategic business and economic matters. Ms. Bush was the inaugural head and managing director of the Federal Housing Finance Board, where she established financial policies and oversaw management and safety and soundness for the nation's Federal Home Loan Banks. She also founded and served as the head of the international finance department of Fannie Mae, where she led funding transactions globally, and was appointed by President Reagan as the U.S. Alternate Executive Director of the International Monetary Fund Board.
In addition
Ms. Bush brings extensive leadership experience in banking, international finance, corporate governance and public policy to the Board. Additionally, she brings deep experience in corporate finance and strategy and the operations and regulation of financial services businesses.
* Ms. Bush has informed the Nominating and Governance Committee that she would be retiring from one of her other public company boards as she has reached the mandatory retirement age for such board and would no longer be serving after May 2020, bringing the number of additional public company boards she serves on to three (in addition to the Company's Board).
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AGE: 71
DIRECTOR SINCE: 2007
OTHER CURRENT PUBLIC COMPANY BOARDS*: Bloom Energy, ManTech International Corporation, Marriott International, Inc., T. Rowe Price Group, Inc.
COMMITTEES: Nominating and Governance, Risk Oversight
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Gregory C. Case Independent
Biography
Mr. Case has been chief executive officer of Aon plc, a leading global professional services firm providing advice and solutions in risk, retirement and health, since 2005 and was president from 2005 to 2018. He is also a member of Aon’s board of directors. Prior to joining Aon, Mr. Case was with McKinsey & Company, an international management consulting firm, for 17 years, most recently serving as head of the Financial Services Practice.
In addition
Mr. Case has approximately 20 years of experience in the insurance and financial services industries, including in the areas of risk management services, insurance and reinsurance brokerage, and through his management consulting and banking experience. He brings valuable leadership experience and knowledge of business operations and the day-to-day management of a large, regulated global financial corporation. His skills include strategy and business development, risk management and people management.
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AGE: 57
DIRECTOR SINCE: 2007
OTHER CURRENT PUBLIC COMPANY BOARDS: Aon plc
COMMITTEES: Compensation and Leadership Development (Chair)
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Candace H. Duncan Independent
Biography
Ms. Duncan retired from KPMG LLP, a global network of professional firms providing audit, tax and advisory services, in November 2013 where she had been managing partner of the Washington, D.C. metropolitan area since 2009. Ms. Duncan also was on the KPMG LLP board of directors from 2009 to 2013, and served as chair of the board’s nominating committee as well as the partnership and employer of choice committee. Prior thereto, she served in various roles at the firm, including managing partner for audit for the Midatlantic area and audit partner in charge for the Virginia business unit. Ms. Duncan served on the board of FTD Companies, Inc. from 2014 to 2019.
In addition
Ms. Duncan has experience leading and managing a large accounting firm’s growth priorities across its audit, tax and advisory functions in key markets. She also has a strong financial and accounting background, gained through her many years of experience at KPMG LLP, including her experience as a lead audit partner for major international and domestic companies. She has served clients on a wide range of accounting and operational issues, public securities issuances and strategic corporate transactions. Her thorough knowledge of public company accounting, financial statements and corporate finance is of significant value to the Company.
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AGE: 66
DIRECTOR SINCE: 2014
OTHER CURRENT PUBLIC COMPANY BOARDS: Teleflex Inc.
COMMITTEES: Audit, Nominating and Governance
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Joseph F. Eazor Independent
Biography
Mr. Eazor currently serves as the president and chief executive officer of Conifer Health Solutions, LLC, a healthcare business solutions organization, a position he has held since January 2020. Prior to joining Conifer, he was executive vice president and chief customer officer of computer software company, Oracle Corporation, from July 2019 to January 2020, and chief executive officer of Rackspace, a leading managed cloud company, from 2017 to 2019. Mr. Eazor previously served as the president and chief executive officer of EarthLink, Inc., a leading communications and IT services provider, and was a member of EarthLink’s board from January 2014 until February 2017. From 2011 to 2013, he served as executive vice president and chief operating officer of global sales and customer operations at EMC and prior to that he served in a variety of leadership roles at Hewlett Packard and Electronic Data Systems. Mr. Eazor also served on the board of Commvault, a data protection and information management company, from October 2015 to July 2018.
In addition
Mr. Eazor has a proven track record of leading successful global companies. He has extensive experience in international strategy and business development and in technology and IT services. In addition to his corporate roles, Mr. Eazor has management consulting experience from his time as a senior partner with McKinsey & Co. and as a partner and board member of A.T. Kearney, Inc.
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AGE: 57
DIRECTOR SINCE: 2016
OTHER CURRENT PUBLIC COMPANY BOARDS: None
COMMITTEES: Audit
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Cynthia A. Glassman, Ph.D. Independent
Biography
Dr. Glassman was appointed by President Bush as Under Secretary for Economic Affairs at the U.S. Department of Commerce from 2006 to 2009 and as Commissioner of the U.S. Securities and Exchange Commission from 2002 to 2006, including serving as Acting Chair during the summer of 2005. Dr. Glassman is currently a Senior Research Scholar at the Institute for Corporate Responsibility at the George Washington University School of Business and a member of the Dow Jones Special Committee. She held various positions during her 12 years at the Federal Reserve, including as Chief of the Financial Reports Section and an Economist in the Capital Markets Section. She also has 15 years of experience in financial services consulting, including as a Principal of Ernst & Young LLP and Managing Director of Furash & Company. Dr. Glassman served on the board of Navigant Consulting, Inc. from 2009 to 2019.
In addition
Dr. Glassman brings extensive regulatory, corporate governance, risk management, financial services and banking experience to the Board. She holds a Ph.D. in economics and has spent over 45 years in the public and private sectors focusing on financial services regulatory and public policy issues.
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AGE: 72
DIRECTOR SINCE: 2009
OTHER CURRENT PUBLIC COMPANY BOARDS: None
COMMITTEES: Audit (Chair)
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Roger C. Hochschild
Biography
Mr. Hochschild has served as the chief executive officer and president of Discover since October 2018 and served as our president and chief operating officer from 2004 to 2018. He was executive vice president, chief administrative and strategic officer for Morgan Stanley from 2001 to 2004, and was executive vice president, chief marketing officer - Discover from 1998 to 2001, when Discover was a part of Morgan Stanley.
In addition
Mr. Hochschild's deep understanding of the Company’s business and the financial services industry provides valuable expertise to the Company. He also brings leadership experience in risk management, consumer financial services, information technology and knowledge of operations and the day-to-day management of a global financial corporation, which plays a critical role in board discussions regarding strategic planning and business development for the Company.
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AGE: 55
DIRECTOR SINCE: 2018
OTHER CURRENT PUBLIC COMPANY BOARDS: Principal Financial Group
COMMITTEES: None
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Thomas G. Maheras Independent
Biography
Mr. Maheras has been the managing partner of Tegean Capital Management, LLC since 2008, and a partner of Iron Park Capital Management, LLC since 2019, two investment advisory firms based in New York. Prior to that, he was chairman and co-chief executive officer of Citi Markets and Banking, the investment banking division of Citigroup, Inc., where he held roles of increasing responsibility after starting his career as a fixed-income trader at Salomon Brothers. He has served as chairman of the U.S. Treasury Department Borrowing Advisory Committee and as an executive committee member of the Board of Directors of the Securities Industry and Financial Markets Association.
In addition
Mr. Maheras has extensive risk management, banking and capital markets experience, including 23 years at Citigroup, Inc. where his responsibilities included leading the global capital markets business. He also brings valuable leadership experience and knowledge of operations and the day-to-day management of a global financial services organization. Mr. Maheras’ financial background and banking and financial services experience includes a knowledge of financial statements, corporate finance, accounting and capital markets.
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AGE: 57
DIRECTOR SINCE: 2008
OTHER CURRENT PUBLIC COMPANY BOARDS: None
COMMITTEES: Risk Oversight
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Michael H. Moskow Independent
Biography
Mr. Moskow is currently Vice Chair and Distinguished Fellow, Global Economy at The Chicago Council on Global Affairs. He retired as president and chief executive officer of the Federal Reserve Bank of Chicago in 2007, where he had served since 1994. Mr. Moskow was a Deputy U.S. Trade Representative, following his appointment by President Bush in 1991, and earlier in his career, held a number of senior positions with the U.S. government, including Undersecretary of Labor at the U.S. Department of Labor, director of the Council on Wage and Price Stability and senior staff economist with the Council of Economic Advisers. Mr. Moskow serves on the board of Commonwealth Edison Company, a subsidiary of Exelon Corporation, and Flowstone Private Equity Opportunity Fund. He served on the board of CityBase until early 2019.
In addition
Mr. Moskow brings extensive regulatory, risk management, financial services and banking experience to the Board and has extensive knowledge of the economy and financial markets. Through his senior regulatory positions, particularly in the financial services arena, and service on the boards of other financial institutions, he brings a thorough and insightful perspective to a wide range of issues.
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AGE: 82
DIRECTOR SINCE: 2007
OTHER CURRENT PUBLIC COMPANY BOARDS: Commonwealth Edison Company
COMMITTEES: Risk Oversight (Chair)
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Mark A. Thierer Independent
Biography
Mr. Thierer currently serves as the managing partner of AssetBlue Investment Group, a position he has held since June 2017. From October 2017 through February 2018, Mr. Thierer also served as the interim chief executive officer of Dentsply Sirona Inc., a manufacturer of dental implants. Mr. Thierer was chief executive officer of OptumRx, a pharmacy care services company, from July 2015 until September 2017. He previously served as chairman and chief executive officer of Catamaran Corporation, one of the nation’s largest pharmacy benefit management companies, from March 2011 until it combined with OptumRx in 2015.
In addition
Mr. Thierer has experience as a chief executive officer leading a national pharmacy benefit and healthcare information technology solutions company. His skills include strategy and business development, technology, finance and marketing. He brings valuable leadership experience and knowledge of operations and the day-to-day management of a national corporation. Mr. Thierer also has experience in the structuring and execution of strategic corporate transactions, including mergers and acquisitions.
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AGE: 60
DIRECTOR SINCE: 2013
OTHER CURRENT PUBLIC COMPANY BOARDS: Xeris Pharmaceuticals, Inc.
COMMITTEES: Compensation and Leadership Development
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Lawrence A. Weinbach Independent Chairman
Biography
Mr. Weinbach has been chairman of Great Western Products Holdings, LLC, a manufacturer and master distributor of food and nonfood concession products, since 2009, and has been a managing director of Yankee Hill Capital Management, LLC, a private equity firm, since 2006. Prior to that, he was the executive chairman of Unisys Corporation, a worldwide information services and technology company, from 2005 to 2006, and its chairman and chief executive officer from 1997 to 2004. He began his career at Arthur Andersen, ultimately serving as managing partner and chief executive of Andersen Worldwide, a global professional services organization, which included Arthur Andersen and the company now known as Accenture, from 1989 to 1997.
In addition
Mr. Weinbach has experience in the financial and accounting industry and the information technology and financial services sectors. Mr. Weinbach’s strong financial background, gained through his private equity, accounting, investment banking and financial services experience, includes knowledge of risk management, governance, financial statements, corporate finance, accounting and capital markets. As a former chief executive officer, he also brings valuable leadership experience and knowledge of operations, corporate governance and the day-to-day management of a global corporation.
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AGE: 80
DIRECTOR SINCE: 2007
INDEPENDENT CHAIRMAN SINCE: 2019 (Lead Director from 2009-2018)
OTHER CURRENT PUBLIC COMPANY BOARDS: None
COMMITTEES: Audit, Nominating and Governance (Chair)
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|
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Jennifer L. Wong Independent
Biography
Ms. Wong has been the chief operating officer of Reddit, Inc., a community and discussion platform, since 2018, where she oversees business strategy and growth, and related teams for the company. She previously served as Time, Inc.'s president of digital and then its chief operating officer from 2016 to 2018, where she led growth strategy and digital business transformation. Prior to that, Ms. Wong held the role of chief business officer from 2011 to 2015 at Popsugar, Inc., a media and technology company, where she led business operations and the company's media and commerce businesses. Earlier in her career, Ms. Wong held several executive management roles at AOL and worked with a range of digital media and technology clients at McKinsey & Company.
In addition
Ms. Wong has deep social media expertise, platform skills, and an understanding of social media as an essential marketing tool. In addition to her extensive digital and marketing experience, her skills include business strategy and growth development, risk management, and technology.
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AGE: 45
DIRECTOR SINCE: 2019
OTHER CURRENT PUBLIC COMPANY BOARDS: None
COMMITTEES: Risk Oversight
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AUDIT COMMITTEE
14 Meetings in 2019
REPORT: Page 50
|
|
MEMBERS
Dr. Glassman (Chair)
Ms. Duncan Mr. Eazor Mr. Weinbach |
Primary Responsibilities
|
|
|
• Oversee the integrity of our consolidated financial statements, our system of internal control over financial reporting, our risk management, and the qualifications and independence of our independent registered public accounting firm.
• Oversee the internal audit function, including the performance of our internal audit executive.
|
• Sole authority and responsibility to select, determine the compensation of, evaluate the performance of, and, when appropriate, replace our independent registered public accounting firm.
• Oversee the Company's compliance with legal and regulatory requirements.
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COMPENSATION AND LEADERSHIP DEVELOPMENT
9 Meetings in 2019
REPORT: Page 39
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MEMBERS
Mr. Case (Chair)
Mr. Aronin Mr. Thierer |
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Primary Responsibilities
|
|
|
• Annually review and approve the corporate goals and objectives relevant to the compensation of the CEO and evaluate his performance in light of these goals.
• Determine the compensation of our executive officers and other appropriate officers.
|
• Oversee risk management associated with our compensation practices.
• Administer our incentive and stock-based compensation plans.
• Oversee plans for management development and succession.
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|
NOMINATING AND GOVERNANCE
5 Meetings in 2019
|
MEMBERS
Mr. Weinbach (Chair)
Ms. Bush Ms. Duncan |
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Primary Responsibilities
|
|
|
• Identify and recommend candidates for election to our Board and each Board committee.
• Consider matters of corporate governance and make recommendations or take action.
|
• Oversee the annual evaluation of the members of our Board and its committees, and management.
• Recommend director compensation and benefits.
• Review annually our Corporate Governance Policies.
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RISK OVERSIGHT
9 Meetings in 2019
|
MEMBERS
Mr. Moskow (Chair)
Ms. Bush Mr. Maheras
Ms. Wong
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|
Primary Responsibilities
|
|
|
• Oversee the enterprise-wide risk management framework, make recommendations to the Board on risk management policies and the Company’s risk appetite and tolerance, oversee risk management governance and policies and perform other functions pursuant to the Federal Reserve’s regulations.
|
• Oversee the performance of our Chief Risk Officer.
• Oversee capital planning and liquidity risk management activities.
|
•
|
presides at all meetings of the Board, and has the authority to call, and will lead, non-employee director sessions and independent director sessions;
|
•
|
approves Board meeting agenda items and the schedule of Board meetings;
|
•
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helps facilitate communication between senior management and the independent directors;
|
•
|
acts as a mentor to the CEO; and
|
•
|
participates and provides leadership on CEO performance evaluation and succession planning.
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RISK OVERSIGHT COMMITTEE
|
The Risk Oversight Committee is responsible for overseeing our risk management policies and the operations of the Company’s enterprise-wide risk management framework, and capital planning and liquidity risk management activities. The Risk Oversight Committee is responsible for, among other things:
• approving and periodically reviewing our risk management policies;
• overseeing the operation of policies and procedures which establish risk management governance, and risk-control infrastructure;
• overseeing the operation of processes and systems for implementing and monitoring compliance with such policies and procedures;
• reviewing and making recommendations to the Board, as appropriate, regarding the Company’s risk management framework, key risk management policies and the Company’s risk appetite and tolerance;
• receiving and reviewing regular reports from our Chief Risk Officer on current and emerging risks, the status of and changes to risk exposures, policies, procedures and practices, and the steps management has taken to monitor and control risk exposures;
• reviewing and approving the Company’s information security program, which seeks to mitigate information security risks, including cybersecurity risks; and
• receiving reports regarding compliance with risk appetite limits, risk management policies, procedures and controls.
The Risk Oversight Committee shares information with (which it may do through the Chair of the Committee) and meets in joint session with the Audit Committee as necessary or desirable to provide the committees with the information necessary to permit them to fulfill their duties and responsibilities with respect to oversight of risk management matters. For example, at least quarterly, the Risk Oversight and Audit Committees meet in joint session and receive updates from the Chief Information Security Officer on the Company’s information security program, including trends and developments regarding information security risks and threats.
The Risk Oversight Committee also authorizes the Company’s Risk Committee, which is comprised of the members of the Company’s Executive Committee and the Discover Bank President. The Chief Risk Officer, a member of the Executive Committee, serves as the Risk Committee chair. The Risk Committee provides a forum for key members of our executive management team to review and discuss credit, market, liquidity, operational, legal and compliance and strategic risks across the Company and for each business unit.
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AUDIT COMMITTEE
|
Our Audit Committee assists the Board in the oversight of, among other things, the integrity of our consolidated financial statements, our compliance with legal and regulatory requirements, our system of internal controls and the qualifications and independence of our independent registered public accounting firm. With respect to compliance matters, our Audit Committee approves our Compliance Policy and reinforces the importance of compliance risk management. The Audit Committee assists the Board in its oversight of the Company’s anti-money laundering program. In addition, the Audit Committee receives reporting on the effectiveness of our Compliance Risk Management Program. Our Audit Committee also, taking into consideration the Board’s allocation of the review of risk among various committees of the Board, receives and reviews reports from the Chief Risk Officer and other members of management as the Audit Committee deems appropriate. These reports include a review of the guidelines and policies for assessing and managing the Company’s exposure to risks, the corporation’s major financial risk exposures, and the steps management has taken to monitor and control such exposures. The Audit Committee shares information with (which it may do through the Chair of the Committee) and meets in joint session with the Risk Oversight Committee as necessary or desirable to provide the committees with the information necessary to permit them to fulfill their duties and responsibilities with respect to oversight of risk management matters.
The Audit Committee provides oversight of the Company’s internal audit function. The Audit Committee reviews and approves the appointment, replacement and compensation of the head of Internal Audit and the charter, budget and staffing levels of the Company’s internal audit function. The Audit Committee reviews and approves the rolling twelve month audit plan. The Audit Committee also receives periodic reports from the head of Internal Audit on the status of the annual audit plan, including significant results and the status of corrective actions.
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COMPENSATION AND LEADERSHIP DEVELOPMENT COMMITTEE
|
The Compensation Committee is responsible for overseeing risk management associated with the Company’s employee compensation practices. It annually reviews the Company’s risk assessment of its compensation plans and practices to assess whether employee plans contain features that might encourage excessive risk-taking that could threaten the value of the Company, are reasonably likely to have a material adverse effect on the Company or could result in a failure to comply with regulatory requirements. The Compensation Committee regularly reviews reports from the Company’s Chief Risk Officer, and meets with the Chief Risk Officer and the Risk Oversight and Audit Committees of the Board of Directors to discuss the annual employee incentive compensation risk assessment and to review outcomes of certain risk events and any impact to compensation decisions.
Separately, the Compensation Committee meets with the Company’s Chief Risk Officer to monitor the results of the Company’s incentive compensation program payments for certain employees, including our NEOs.
The Compensation Committee also oversees the Company’s succession planning process. On an annual basis, management conducts succession planning for all of the Company’s officer level roles, including our NEOs. Management further identifies critical roles beyond the officer level where there are or may be uniquely strong needs for immediate successors, where restructuring of the role is not likely to be a viable succession plan, and where having the role unfilled for a period of time could create regulatory, risk management or business continuity gaps. Annually, our CEO and Chief Human Resources Officer partner to conduct succession planning for our NEOs and other executives. For each of our NEOs, the role is reviewed to determine options for succession and development needed to increase succession readiness. Consideration is given to external hiring where appropriate. Management then reviews NEO succession plans with the Compensation Committee and the Board.
|
•
|
An annual retainer fee of $105,000;
|
•
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An Independent Chairman annual retainer of $210,000;
|
•
|
A committee chair retainer fee of: (i) $30,000 each for the chairpersons of the Audit Committee and Risk Oversight Committee; (ii) $25,000 for the chairperson of the Compensation Committee; and (iii) $20,000 for the chairperson of the Nominating and Governance Committee; and
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•
|
A non-chair committee membership fee of: (i) $20,000 for each member of each of the Audit Committee and Risk Oversight Committee; (ii) $10,000 for each member of the Compensation Committee; and (iii) $5,000 for each member of the Nominating and Governance Committee.
|
Director
|
Fees Earned or
Paid in Cash
($)
|
Stock Awards
($)(1)
|
Total
($)
|
Jeffrey S. Aronin
|
115,000
|
149,990
|
264,990
|
Mary K. Bush
|
130,000
|
149,990
|
279,990
|
Gregory C. Case(2)
|
130,000
|
149,990
|
279,990
|
Candace H. Duncan(2)
|
130,000
|
149,990
|
279,990
|
Joseph F. Eazor
|
125,000
|
149,990
|
274,990
|
Cynthia A. Glassman
|
135,000
|
149,990
|
284,990
|
Thomas G. Maheras
|
125,000
|
149,990
|
274,990
|
Michael H. Moskow
|
135,000
|
149,990
|
284,990
|
Mark A. Thierer(2)
|
115,000
|
149,990
|
264,990
|
Lawrence A. Weinbach
|
355,000
|
149,990
|
504,990
|
Jennifer L. Wong(2), (3)
|
62,500
|
124,976
|
187,476
|
(1)
|
Reflects RSUs granted under the Directors’ Compensation Plan described above. Amounts reflect the grant date fair value of the 2019 RSUs, which were granted on May 16, 2019 for all non-employee directors, with the exception of Ms. Wong. Ms. Wong's RSUs were granted on July 18, 2019. These amounts reflect the RSUs’ grant date fair value in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Stock Compensation (“FASB ASC Topic 718”) and may not correspond to the actual value that might be realized by the named individuals. Additional details on accounting for stock-based compensation can be found in Note 2: “Summary of Significant Accounting Policies - Stock-based Compensation” and Note 10: “Stock-Based Compensation Plans” of our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2019. As of December 31, 2019, each non-employee director held the following number of RSUs, including deferred RSUs: Mr. Aronin held 59,227; Ms. Bush held 53,995; Mr. Case held 68,115; Ms. Duncan held 13,099; Mr. Eazor held 1,920; Dr. Glassman held 1,920; Mr. Maheras held 44,867; Mr. Moskow held 46,910; Mr. Thierer held 16,040; Mr. Weinbach held 52,927; and Ms. Wong held 1,531.
|
(2)
|
The amounts listed for these individuals in the “Fees Earned or Paid in Cash” column were deferred under the Directors’ Voluntary Nonqualified Deferred Compensation Plan.
|
(3)
|
Ms. Wong joined the Board on July 18, 2019 and, therefore, her "Fees Earned or Paid in Cash" and "Stock Awards" are prorated.
|
|
|
|
PROPOSAL 2
Advisory Vote to Approve Named Executive Officer Compensation
The Board of Directors recommends a vote “FOR” approval of the NEO compensation as disclosed pursuant to Item 402 of SEC Regulation S-K, including in the "Compensation Discussion and Analysis," the compensation tables, and any related information contained in this Proxy Statement. Proxies solicited by the Board will be voted “FOR” this proposal unless otherwise instructed.
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||
Executive Summary
|
|
Overall Company and Business Segment Performance
|
||
Listing of NEOs
|
22
|
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Financial Performance
|
|
Compensation Principles
|
23
|
|
Other Performance Factors
|
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Performance Highlights
|
23
|
|
Risk Performance
|
|
Summary of Chief Executive Officer and All Other NEOs' Compensation
|
24
|
|
Individual Performance
|
|
|
Role of NEOs in Compensation Decisions
|
|||
Overview of Performance
|
|
Other Compensation Decision Considerations
|
||
Management Transition
|
|
Role of the Compensation and Leadership Development Committee
|
||
Effect of 2019 Advisory Vote on NEO Compensation
|
|
|||
Practices and Policies Supporting Strong Corporate Governance and Compensation Programs
|
|
Role of the Compensation Consultants
|
||
|
Other Arrangements, Policies and Practices Related to Our Executive Compensation Program
|
|||
|
||||
Pay-for-Performance
|
|
Share Ownership Guidelines
|
||
Balanced Compensation Structure
|
|
Share Retention Requirements
|
||
Market-Competitive Pay Opportunity
|
|
Clawbacks
|
||
|
Prohibition on Hedging and Pledging
|
|||
Base Salary
|
|
Retirement and Other Benefits
|
||
Short-Term Incentive Program
|
|
Executive Change in Control Severance Policy and Severance Pay Plan
|
||
Long-Term Incentive Program
|
|
|||
|
||||
Factors Affecting Compensation Decisions
|
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|
|
|
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|
|
Named Executive Officer
|
Title
|
Roger C. Hochschild
|
Chief Executive Officer and President ("CEO")
|
John T. Greene
|
Executive Vice President, Chief Financial Officer
|
Diane E. Offereins
|
Executive Vice President, President - Payment Services
|
Julie Loeger
|
Executive Vice President, President - US Cards
|
Wanjiku J. Walcott
|
Executive Vice President, Chief Legal Officer and General Counsel
|
R. Mark Graf(1)
|
Former Executive Vice President, Chief Financial Officer
|
(1)
|
Mr. Graf served as the Company's Chief Financial Officer until September 18, 2019 and served in a senior advisory role until he left the Company on March 1, 2020.
|
|
|
|
1
|
2
|
3
|
Pay-for-Performance
|
Balanced Compensation Structure
|
Market-Competitive Pay Opportunity
|
|
|
|
Grew profit before taxes and reserves ("PBTR") 4%(1) with higher revenues offsetting higher credit losses and expenses
|
|
Based on net income of $2,957 million, the Company achieved profit before taxes and reserves (“PBTR”) of $4,180 million(1)
|
Continued solid card loan and sales growth while maintaining disciplined underwriting and line management
|
|
The Company achieved year-over-year loan growth of 6% and card sales growth of 5% driven by existing customer spend and new account growth
|
Accelerated volume growth in Payment Services, led by PULSE
|
|
Payment Services continued to have strong volume growth of 8% year-over-year and profit before taxes ("PBT") growth of 24% year-over-year
|
Strong return on equity
|
|
The Company achieved return on equity of 26% for the full year
|
(1)
|
Profit before taxes and reserves ("PBTR") is a non-GAAP financial measure which should be viewed in addition to, not as a substitute for, the Company's reported results. PBTR is derived by adding the increase in the allowance for loan losses of $345 million and income tax expense of $878 million to net income of $2,957 million. The Compensation Committee believes that PBTR is a critical measure of the core operating performance of the business that increases focus on factors the Company's incentive-eligible employees are most able to directly impact and influence and controls for variability in significant macroeconomic impacts. Please see "Annex A" for a reconciliation of PBTR growth to net income growth calculated in accordance with GAAP.
|
2019 CEO TARGET PAY MIX
|
|
2019 AVERAGE OF All OTHER NEOs TARGET PAY MIX
|
|
•
|
Solid execution of strategy drove net income of $2,957 million, resulting in profit before taxes and reserves ("PBTR") of $4,180 million(1), representing a 4%(1) year-over-year growth.
|
•
|
Net revenue had a year-over-year increase of 7% driven by solid loan growth and net interest margin expansion.
|
•
|
The Company continued its solid loan growth with year-over-year growth of 6% driven by existing customer spend and new account growth.
|
•
|
Credit performance was strong due to our disciplined underwriting and credit line management, and the impact of advanced analytics in servicing and collections. We also benefited from the strength of the US consumer.
|
•
|
The Company made substantial progress in addressing the Written Agreement with the Federal Reserve relating to the Company's AML program, which ultimately led to the Written Agreement being lifted in February 2020.
|
•
|
Payment Services continued to have strong network volume growth, up 8% and generated a 24% increase in pre-tax income from prior year, driven primarily by strong volume gains from our PULSE business. The business expanded acceptance by adding new partners and relationships with acquirers in key markets, such as the UK, New Zealand, France and Spain.
|
•
|
Card loan growth of 6% was in line with our expectations, driven by strong existing customer spend and new account growth. We continued to introduce features and service enhancements relevant to customers and prospects, including leveraging merchant partnerships to provide even greater value to our cardmembers.
|
•
|
Student loan organic receivables were up 9% from 2019 driven by increased awareness of the Discover brand, enhancements to customer acquisition models and process.
|
•
|
Personal Loan portfolio grew 3% in 2019 enabled by our investments in analytics and modeling, which have had a significant impact on our personal loan credit performance, enabling us to increase originations while maintaining an acceptable level of credit risk.
|
•
|
The Company’s continued focus on delivering outstanding customer satisfaction resulted in its distinction as being ranked “Highest in Customer Satisfaction with National Credit Card Companies” for the fifth time in six years by J.D. Power.(2)
|
(1)
|
Profit before taxes and reserves ("PBTR") is a non-GAAP financial measure which should be viewed in addition to, not as a substitute for, the Company's reported results. PBTR is derived by adding the increase in the allowance for loan losses of $345 million and income tax expense of $878 million to net income of $2,957 million. The Compensation Committee believes that PBTR is a critical measure of the core operating performance of the business that increases focus on factors the Company's incentive-eligible employees are most able to directly impact and influence and controls for variability in significant macroeconomic impacts. Please see "Annex A" for a reconciliation of PBTR growth to net income growth calculated in accordance with GAAP.
|
(2)
|
Discover received the highest score of the J.D. Power 2014-2016, 2018 and 2019 National Credit Card Satisfaction Studies of customers’ satisfaction with their primary credit card. Visit jdpower.com/awards.
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|
Pay-for-Performance
Our compensation should reflect Company, business segment, and individual performance. |
Balanced Compensation Structure
We seek to deliver a mix of fixed and variable compensation that is aligned with shareholder interests and the long-term interests of the Company and that appropriately balances risk and reward. |
Market-Competitive Pay Opportunity
Our compensation should be competitive relative to our peers in order to attract, motivate and retain a talented executive team. |
•
|
Financial Performance: For 2019, the main factor the Compensation Committee considered in evaluating financial performance was the Company's PBTR growth.
|
•
|
Other Performance Factors: The Compensation Committee also considered how well the Company performed with respect to the following factors:
|
–
|
Other Financial Metrics: How well the Company performed relative to the Company's Annual Operating Plan (the "Annual Plan"), and prior year results for the following: net income; ROE (and risk-adjusted returns); earnings per share ("EPS"); total revenue (defined as net interest income plus other income); net charge-offs; and operating expenses.
|
–
|
Key Focus Areas: Extent to which the Company accelerated profitable growth, enhanced capabilities and operating models, grew consumer deposits, profitably scaled Payments business, and matured risk management.
|
–
|
Relative Performance: How well the Company performed against a select group of competitors on profitability, credit performance, growth, total shareholder return, and other measures.
|
•
|
Risk Performance: How well the Company performed with respect to risk management, capital adequacy, and regulatory compliance.
|
•
|
Individual Performance: How well each NEO performed relative to individual objectives, including relative role impact, experience, and internal pay equity.
|
|
|
|
• Ally Financial, Inc.
• American Express Company
• Ameriprise Financial, Inc.
• Capital One Financial Corporation
• CIT Group Inc.
• Comerica Incorporated
|
• Fidelity National Information Services, Inc.
• Fifth Third Bancorp
• Fiserv, Inc.
• KeyCorp
• M&T Bank Corporation
|
• Mastercard Incorporated
• Regions Financial Corporation
• Synchrony Financial
• Visa Inc.
• The Western Union Company
|
|
|
|
(1)
|
Profit before taxes and reserves ("PBTR") is a non-GAAP financial measure which should be viewed in addition to, not as a substitute for, the Company's reported results. PBTR is derived by adding the increase in the allowance for loan losses of $345 million and income tax expense of $878 million to net income of $2,957 million. The Compensation Committee believes that PBTR is a critical measure of the core operating performance of the business that increases focus on factors the Company's incentive-eligible employees are most able to directly impact and influence and controls for variability in significant macroeconomic impacts. Please see "Annex A" for a reconciliation of PBTR growth to net income growth calculated in accordance with GAAP.
|
LONG-TERM INCENTIVE ANNUAL TARGET AWARD MIX
|
|
CEO
|
All other NEOs
|
|
|
•
|
Achieved operating efficiency ratio(1) of 38% driven by solid revenue growth in Direct Banking and Payment Services; expenses grew slightly faster than revenue as the Company invested in profitable loan growth, new capabilities, product enhancements, and global acceptance.
|
•
|
Continued solid loan and revenue growth while maintaining a disciplined approach to credit.
|
•
|
Enhanced next generation analytical capabilities in customer acquisition, collections, and credit risk, driving strong new accounts and charge-off savings.
|
•
|
Improved network acceptance, domestically and internationally, through increased merchant and acquirer relationships and network-to-network partnerships.
|
•
|
Maintained strong capital position while returning over $2.9 billion(2) of capital to shareholders in buybacks and Common Stock dividends.
|
•
|
Maintained a disciplined focus on key initiatives including the launch of Zelle, a person-to-person payments application, for our Deposit customers, and a multi-year loan option in Student Loans.
|
|
2019
|
|
Change from 2018
|
|
Total Revenue(4)
|
$11,459
|
7
|
%
|
|
Net Charge-off Dollars
|
$2,886
|
10
|
%
|
|
Operating Expense
|
$4,393
|
8
|
%
|
|
Net Income
|
$2,957
|
8
|
%
|
|
Diluted Earnings Per Share
|
$9.08
|
17
|
%
|
|
Return on Equity
|
26
|
%
|
1
|
%
|
(1)
|
Operating efficiency ratio represents total other expense divided by revenue net of interest expense.
|
(2)
|
The sum of Common Stock dividends and share repurchases, net of Common Stock issued under stock-based compensation plans.
|
(3)
|
Profit before taxes and reserves ("PBTR") is a non-GAAP financial measure which should be viewed in addition to, not as a substitute for, the Company's reported results. PBTR is derived by adding the increase in the allowance for loan losses of $345 million and income tax expense of $878 million to net income of $2,957 million. The Compensation Committee believes that PBTR is a critical measure of the core operating performance of the business that increases focus on factors the Company's incentive-eligible employees are most able to directly impact and influence and controls for variability in significant macroeconomic impacts. Please see "Annex A" for a reconciliation of PBTR growth to net income growth calculated in accordance with GAAP.
|
•
|
Total loan growth of 6%, driven by existing customer spend and new account growth. Loan growth is considered a key driver of revenue and future profitability, and the Company continued its momentum after achieving 7% loan growth in 2018.
|
•
|
Direct Banking revenue was higher than 2018 driven by loan and sales growth as well as net interest margin expansion.
|
•
|
Direct-to-Consumer Deposits grew $9.7 billion, or 22%, over 2018 and now represent 55% of total funding
|
•
|
Total net charge-off rate on average loans outstanding of 3.17% was up from the prior year rate of 3.06% due primarily to the seasoning of loan growth from the last few years and, to a lesser extent, supply-driven credit normalization.
|
•
|
The Company achieved a strong operating efficiency ratio(1) of 38%, relatively flat to 2018.
|
•
|
Total network volume was higher than the prior year by 7% driven by PULSE network volume growth of 7% and Network Partners volume growth of 34% driven by continued expansion of our AribaPay product.
|
•
|
Payment Services pre-tax earnings of $189 million were above 2018 by $37 million, or 24%, driven by higher revenue from volume growth at PULSE and Network Partners.
|
•
|
Progress was made on certain risk management programs.
|
(1)
|
Operating efficiency ratio represents total other expense divided by revenue net of interest expense.
|
ROGER C. HOCHSCHILD
Chief Executive Officer and President |
||
|
|
|
2019 COMPENSATION
|
Key Achievements
|
|
|
Drove significant year over year PBTR growth
Led operating areas to achieve strong lending, deposits and payments growth and profitability
Progressed new capabilities across collections, underwriting, and servicing
Recruited new Executive Committee members and multiple key officer roles
|
Continued progress on Company operating efficiency: invested in technology talent while maintaining flat headcount elsewhere through organizational efficiencies
Introduced new Discover Behaviors to drive culture
Supported maturing AML program, which resulted in termination of Federal Reserve Board written agreement in 2020
|
JOHN T. GREENE
Executive Vice President, Chief Financial Officer |
||
|
|
|
2019 COMPENSATION
|
Key Achievements
|
|
|
Seamlessly transitioned into role of Chief Financial Officer
Enhanced business unit finance processes for reporting and investment decisions
|
Maintained strong investor relations following transition from former CFO
Supported CECL implementation
|
DIANE E. OFFEREINS
Executive Vice President, President - Payment Services |
||
|
|
|
2019 COMPENSATION
|
Key Achievements
|
|
|
Delivered strong year-over-year growth in profits and network volume
Increased global acceptance through agreements with new partners
Signed new network alliance partners and renewed key PULSE issuers
|
Began delivery of Secure Remote Commerce and core underlying capabilities
Launched Discover Card’s contactless initiative
Supported maturing AML program, which resulted in termination of Federal Reserve Board written agreement in 2020
|
JULIE A. LOEGER
Executive Vice President, President - US Cards |
||
|
|
|
2019 COMPENSATION
|
Key Achievements
|
|
|
Drove year-over-year growth in sales, receivables, and new accounts
Implemented a new product strategy to generate growth through secured, miles, student, and small business card segments
Drove new accounts and incremental sales through new agreements with top tier strategic partners
|
Modernized servicing infrastructure to increase efficiency
Drove award winning customer satisfaction in Mobile Credit Card Apps, Credit Card Website, and Small Business Credit Cards
Supported maturing risk management, including regulatory risk
|
WANJIKU J. WALCOTT
Executive Vice President, Chief Legal Officer and General Counsel |
||
|
|
|
2019 COMPENSATION
|
Key Achievements
|
|
|
Seamlessly transitioned into role of General Counsel
Provided leadership and guidance to management and the Board of Directors on legal and governance matters
|
Provided strong leadership and counsel in ongoing innovation, litigation strategy and business initiatives
Legal function supported risk management programs
|
R. MARK GRAF
Former Executive Vice President, Chief Financial Officer |
||
|
|
|
2019 COMPENSATION
|
Key Achievements
|
|
|
Seamlessly facilitated transition to new Chief Financial Officer
Created and implemented robust framework for economic downturn preparation
Continued strength in investor relations, including industry recognition for this function
|
Prepared the Company, investors, analysts and rating agencies for post CECL environment
Further accelerated savings through successful corporate procurement initiatives
Repositioned Company’s balance sheet to be more flexible and better meet the needs of the business
|
*
|
Reflects cash and equity awards to provide replacement value of forfeited equity; cash payment subject to repayment for voluntary termination within two year of hire date.
|
•
|
Review, approve, and administer all compensation programs affecting NEOs and evaluate whether such plans are aligned with the Company’s compensation structure policies;
|
•
|
Annually review and approve:
|
–
|
Performance criteria, goals, and award vehicles used in our compensation plans for our NEOs, and
|
–
|
Performance of and compensation delivered to our NEOs;
|
•
|
Review the Company’s compensation practices to evaluate whether such practices take into account risk outcomes in making compensation determinations and do not encourage imprudent risk-taking;
|
•
|
Oversee the Company’s management development and succession planning efforts; and
|
•
|
Review and approve any contracts, policies, or programs related to compensation, contractual arrangements, or severance plans affecting NEOs.
|
(1)
|
Mr. Greene is expected to meet his required multiple within the applicable timeframe.
|
Executive
|
Year
|
Salary
($)
|
|
Bonus
($)
|
|
|
Stock
Awards(1)
($)
|
|
Non-Equity
Incentive Plan Compensation(2)
($)
|
|
Change in
Pension Value and NQDC Earnings(3)
($)
|
|
All Other
Compensation(4)
($)
|
|
|
Total
($)
|
Roger C. Hochschild
|
2019
|
927,135
|
|
—
|
|
|
6,500,016
|
|
1,700,000
|
|
50,585
|
|
72,700
|
|
|
9,250,436
|
CEO and President
|
2018
|
840,385
|
|
—
|
|
|
3,569,969
|
|
1,211,250
|
|
0
|
|
42,498
|
|
|
5,664,102
|
|
2017
|
800,000
|
|
—
|
|
|
3,200,017
|
|
1,320,000
|
|
32,668
|
|
18,750
|
|
|
5,371,435
|
John T. Greene(5)
|
2019
|
169,615
|
|
—
|
|
|
1,000,001
|
|
326,000
|
|
—
|
|
12,565
|
|
|
1,508,181
|
EVP, Chief Financial
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Diane E. Offereins
|
2019
|
700,000
|
|
—
|
|
|
2,100,042
|
|
988,000
|
|
44,153
|
|
44,038
|
|
|
3,876,233
|
EVP, President -
|
2018
|
690,385
|
|
—
|
|
|
2,204,990
|
|
962,500
|
|
0
|
|
44,758
|
|
(6)
|
3,902,633
|
Payment Services
|
2017
|
650,000
|
|
—
|
|
|
1,950,058
|
|
863,375
|
|
28,228
|
|
18,750
|
|
|
3,510,411
|
Julie A. Loeger(5)
|
2019
|
700,000
|
|
—
|
|
|
2,100,042
|
|
944,000
|
|
90,534
|
|
43,250
|
|
|
3,877,826
|
EVP, President -
|
2018
|
648,077
|
|
—
|
|
|
1,876,885
|
|
897,850
|
|
0
|
|
44,366
|
|
|
3,467,178
|
US Cards
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Wanjiku J. Walcott(5)
|
2019
|
222,115
|
|
3,250,000
|
|
(7)
|
6,500,036
|
(7)
|
332,000
|
|
—
|
|
98,350
|
|
|
10,402,501
|
EVP, Chief Legal Officer
|
|
|
|
|
|
|
|
|
|
|
|
|||||
and General Counsel
|
|
|
|
|
|
|
|
|
|
|
|
|||||
R. Mark Graf(8)
|
2019
|
700,000
|
|
—
|
|
|
2,100,042
|
|
875,000
|
|
—
|
|
28,288
|
|
|
3,703,330
|
Former EVP, Chief Financial
|
2018
|
690,385
|
|
—
|
|
|
2,204,990
|
|
831,250
|
|
—
|
|
39,658
|
|
|
3,766,283
|
Officer
|
2017
|
650,000
|
|
—
|
|
|
1,950,058
|
|
822,250
|
|
—
|
|
18,750
|
|
|
3,441,058
|
(1)
|
Represents the aggregate grant date fair value of RSU and PSU awards granted to the NEOs pursuant to FASB ASC Topic 718. The value of PSUs is based on the probable outcome of the performance conditions on the grant date. The grant date fair value of the PSUs granted in 2019, assuming the highest level of performance conditions is met, was $7,687,476 for Mr. Hochschild; $1,890,052 for Ms. Offereins; $1,890,052 for Ms. Loeger; and $1,890,052 for Mr. Graf. Mr. Greene and Ms. Walcott did not receive a PSU grant in 2019. Please see "Components of Compensation" for further details on our LTI program. Additional details on accounting for stock-based compensation can be found in Note 2: "Summary of Significant Accounting Policies — Stock-based Compensation" and Note 10: "Stock-Based Compensation Plans" of our consolidated financial statements in our Annual Report on Form 10-K.
|
(2)
|
Represents the annual cash short-term incentive earned for the year and paid to the NEOs within the first two and a half months of the following year if employed on the payment date.
|
(3)
|
Represents the actuarial increase during the year in the pension value, primarily due to the change in the Pension Plan discount rate and mortality tables. For details on the valuation method and assumptions used in calculating the present value of accumulated benefit, please see Note 11: "Employee Benefit Plans" of our consolidated financial statements in our Annual Report on Form 10-K. There were no above market nonqualified deferred compensation earnings for the NEOs. A description of the Company's pension benefits is provided under "2019 Pension Benefits."
|
(4)
|
Represents the incremental cost to the Company of providing certain perquisites and other personal benefits. For 2019, these amounts include:
|
Executive
|
401(k) Contributions(a)
($)
|
|
Charitable Contributions(b)
($)
|
|
Relocation(c)
$
|
|
Other(d)
($)
|
|
Total
($)
|
|
Roger C. Hochschild
|
22,250
|
|
40,300
|
|
—
|
|
10,150
|
|
72,700
|
|
John T. Greene
|
8,077
|
|
—
|
|
—
|
|
4,488
|
|
12,565
|
|
Diane E. Offereins
|
22,250
|
|
14,500
|
|
—
|
|
7,288
|
|
44,038
|
|
Julie A. Loeger
|
22,250
|
|
13,500
|
|
—
|
|
7,500
|
|
43,250
|
|
Wanjiku J. Walcott
|
14,000
|
|
10,000
|
|
69,862
|
|
4,488
|
|
98,350
|
|
R. Mark Graf
|
22,250
|
|
—
|
|
—
|
|
6,038
|
|
28,288
|
|
(a)
|
Represents the Company's contributions to the Discover 401(k) Plan for each NEO during each calendar year. All named executive officers received 401(k) plan matching contributions consistent with the formula applicable to all eligible U.S. employees.
|
(b)
|
Represents contributions made by the Company to charitable organizations chosen by each NEO, as well as contributions made on behalf of certain NEOs under our charitable contribution matching programs, under which personal contributions meeting the guidelines of our program are eligible for Company matching contributions (exceeding the amount generally available to the broader employee population).
|
(c)
|
Represents $22,427 related to lease cancellation, $32,132 of travel and temporary living, and $15,303 of other miscellaneous expenses related to relocation. This amount is inclusive of tax gross-up related $31,655 of the before stated relocation costs. Additionally, $33,024 in expenses associated with her relocation will be paid to her in 2020.
|
(d)
|
Includes the incremental cost to Discover for airline concierge keys, personal security assessment and additional personal security services to each NEO, access to/use of the Company’s Executive Fitness Center, and estimated resale value of Company tickets for sporting, cultural or other events for personal use when they are not otherwise used for business purposes.
|
(5)
|
Mr. Greene and Ms. Walcott were not NEOs during 2017 and 2018, and Ms. Loeger was not a NEO in 2017.
|
(6)
|
Represents actual All Other Compensation earned in 2018.
|
(7)
|
Reflects cash and equity awards to provide replacement value of forfeited equity; cash payment subject to repayment for voluntary termination within two year of hire date.
|
(8)
|
Mr. Graf served as the Company's Chief Financial Officer until September 18, 2019 when he transitioned to a senior advisory role in which he served until he left the Company on March 1, 2020.
|
|
|
Estimated future
payouts under
non-equity
incentive plan
awards (1)
|
|
Estimated future payouts under
equity incentive plan awards(2)
|
All Other Stock
Awards:
Number of
Shares of Stock
or Units
(#)
|
|
|
Grant Date
Fair Value of
Stock and
Option
Awards(6)
($)
|
|
|||||
Name
|
Grant Date
|
Target
($)
|
|
|
Threshold
(#)
|
Target
(#)
|
|
Maximum
(#)
|
|
|||||
Roger C. Hochschild
|
|
1,654,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/20/2019
|
|
|
|
|
|
|
|
|
19,199
|
|
(3)
|
1,375,032
|
|
|
2/20/2019
|
|
|
|
0
|
71,558
|
|
107,337
|
|
|
|
|
5,124,984
|
|
John T. Greene
|
|
302,055
|
|
|
|
|
|
|
|
|
||||
|
9/18/2019
|
|
|
|
|
|
|
|
|
11,861
|
|
(4)
|
1,000,001
|
|
Diane E. Offereins
|
|
875,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/20/2019
|
|
|
|
|
|
|
|
|
11,729
|
|
(3)
|
840,031
|
|
|
2/20/2019
|
|
|
|
0
|
17,593
|
|
26,390
|
|
|
|
|
1,260,011
|
|
Julie A. Loeger
|
|
875,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/20/2019
|
|
|
|
|
|
|
|
|
11,729
|
|
(3)
|
840,031
|
|
|
2/20/2019
|
|
|
|
0
|
17,593
|
|
26,390
|
|
|
|
|
1,260,011
|
|
Wanjiku J. Walcott
|
|
307,021
|
|
|
|
|
|
|
|
|
||||
|
7/22/2019
|
|
|
|
|
|
|
|
|
78,951
|
|
(5)
|
6,500,036
|
|
R. Mark Graf
|
|
875,000
|
|
|
|
|
|
|
|
|
||||
|
2/20/2019
|
|
|
|
|
|
|
|
|
11,729
|
|
(3)
|
840,031
|
|
|
2/20/2019
|
|
|
|
0
|
17,593
|
|
26,390
|
|
|
|
|
1,260,011
|
|
(1)
|
Represents the target payout under the annual STI program. Awards can deliver above or below target primarily based on annual Company PBTR. The Compensation Committee also considers other secondary Company-wide metrics as described in more detail under "Components of Compensation — Short-Term Incentive Program." Because there is no threshold or maximum payout, those columns have been omitted in accordance with SEC rules. Actual payout amounts for 2019 are included in the "Non-Equity Incentive Plan Compensation" column of the "2019 Summary Compensation Table."
|
(2)
|
Represents PSUs awarded in February 2019 under the 2014 Omnibus Incentive Plan. PSUs will vest and convert to shares of Common Stock on February 1, 2022, within the represented threshold and maximum amounts, depending on the extent the Company exceeds specific cumulative EPS performance goals over the three-year period and provided the executive remains employed by the Company (with exceptions for certain termination events as detailed below), and are subject to an evaluation of compliance with the Company’s risk policies. The entire PSU award will be canceled if the minimum cumulative EPS performance threshold is not met. To the extent the NEO voluntarily terminates from the Company or is terminated for cause prior to the scheduled vesting date, other than as described below, none of the PSUs will vest and the entire award will be forfeited. In certain instances of a termination of the NEO’s employment prior to the scheduled vesting date, including due to (i) involuntary termination such as a reduction in force or elimination of the executive’s position, provided that a fully-executed irrevocable release agreement is executed and subject to a risk review or (ii) the executive's eligible retirement, a pro-rata portion of the PSUs will vest and convert to shares following the conclusion of the performance and vesting periods, based on actual performance. In the event of death or disability, the award will vest and shares will convert and be paid at the end of the performance period based on actual performance achieved. In the event of a change in control of the Company during the first year of the performance period, the award will convert to cash at target performance and be paid out according to the vesting schedule or sooner in the event of a qualified termination following the change in control event. In the event of a change in control of the Company during the second or third year of the performance period, performance will be measured through the last day of the Company’s quarter preceding the change in control and the award will then be converted to cash and paid out according to the vesting schedule or sooner in the event of a qualified termination following the change in control event.
|
(3)
|
Represents RSUs awarded in February 2019 under the 2014 Omnibus Incentive Plan, which are expected to vest and convert in three equal installments on February 1, 2020, 2021 and 2022. In certain instances of a termination of the NEO’s employment prior to the scheduled vesting date, including due to (i) involuntary termination such as a reduction in force or elimination of the executive’s position, provided that a fully-executed irrevocable release agreement is executed and subject to a risk review or (ii) the executive's eligible retirement, a pro-rata portion of the RSUs will vest and convert to shares. Vesting of these RSUs will be accelerated in the event of termination of the executive’s employment due to (i) a change in control or (ii) the executive’s death or disability. Unvested RSUs will be canceled in the event of a termination of employment for any other reason.
|
(4)
|
Represents RSUs awarded in September 2019 under the 2014 Omnibus Incentive Plan, which are expected to vest and convert in three equal installments on August 1, 2020, 2021 and 2022. In certain instances of a termination of the NEO’s employment prior to the scheduled vesting date, including due to (i) involuntary termination such as a reduction in force or elimination of the executive’s position, provided that a fully-executed irrevocable release agreement is executed and subject to a risk review or (ii) the executive's eligible retirement, a pro-rata portion of the RSUs will vest and convert to shares. Vesting of these RSUs will be accelerated in the event of termination of the executive’s employment due to (i) a change in control or (ii) the executive’s death or disability. Unvested RSUs will be canceled in the event of a termination of employment for any other reason.
|
(5)
|
Represents RSUs awarded in July 2019 under the 2014 Omnibus Incentive Plan, which are expected to vest and convert in three equal installments on August 1, 2020, 2021 and 2022. In certain instances of a termination of the NEO’s employment prior to the scheduled vesting date, including due to (i) involuntary termination such as a reduction in force or elimination of the executive’s position, provided that a fully-executed irrevocable release agreement is executed and subject to a risk review or (ii) the executive's eligible retirement, a pro-rata portion of the RSUs will vest and convert to shares. Vesting of these RSUs will be accelerated in the event of termination of the executive’s employment due to (i) a change in control or (ii) the executive’s death or disability. Unvested RSUs will be canceled in the event of a termination of employment for any other reason.
|
(6)
|
Represents the aggregate grant date fair value of the awards pursuant to FASB ASC Topic 718. Additional details on accounting for stock-based compensation can be found in Note 2: "Summary of Significant Accounting Policies - Stock-based Compensation" and Note 10: "Stock-Based Compensation Plans" of our consolidated financial statements contained in our Annual Report on Form 10-K.
|
(1)
|
All equity award values are based on a December 31, 2019 closing stock price of $84.82 per share of our Common Stock. RSUs include the right to receive dividend equivalents in the same amount and at the same time as dividends are paid to all Company common shareholders. PSUs include the right to receive dividend equivalents, which will accumulate and pay out in cash, if and when the underlying shares are released to the NEOs.
|
(2)
|
Excludes 430,763 deferred RSUs for Mr. Hochschild, as described in "2019 Nonqualified Deferred Compensation Table." These shares will convert to shares of Common Stock when Mr. Hochschild leaves the Company.
|
(3)
|
These RSUs are expected to vest and convert to shares of Common Stock on December 17, 2020.
|
(4)
|
These RSUs vested and converted to shares of Common Stock on February 1, 2020.
|
(5)
|
These RSUs vested or are expected to vest and convert to shares of Common Stock in equal installments on February 1, 2020 and 2021.
|
(6)
|
These RSUs vested or are expected to vest and convert to shares of Common Stock in equal installments on February 1, 2020, 2021 and 2022.
|
(7)
|
These PSUs vested and converted to shares of Common Stock on February 1, 2020, based on EPS performance and after a satisfactory risk policies review. Amounts reported reflect the actual delivery level as determined by the Compensation Committee following its review of performance and risk assessment.
|
(8)
|
These RSUs vested or are expected to vest and convert to shares of Common Stock in equal installments on August 1, 2020, 2021 and 2022.
|
(9)
|
Assuming applicable performance conditions based on cumulative EPS and successful risk policy review are satisfied, PSUs will vest and convert to shares of Common Stock on February 1, 2021. As required under applicable SEC guidance, because cumulative performance exceeded the target level, unvested PSUs are shown at the amounts corresponding to, and assuming achievement of, the maximum performance level for the full performance period. The final payout will be determined by the Compensation Committee and may be less than amount shown.
|
(10)
|
Assuming applicable performance conditions based on cumulative EPS and successful risk policy review are satisfied, PSUs will vest and convert to shares of Common Stock on February 1, 2022. As required under applicable SEC guidance, because performance during the first year of the performance period did not exceed the target level, unvested PSUs are shown at the amounts corresponding to target. The final payout will be determined by the Compensation Committee and may be less than amount shown.
|
(11)
|
These RSUs are inclusive of 3,781 units that vested on February 1, 2020. All remaining RSUs did not vest and were canceled upon Mr. Graf's termination of employment.
|
(12)
|
These RSUs are inclusive of 3,911 units that vested on February 1, 2020. All remaining RSUs did not vest and were canceled upon Mr. Graf's termination of employment.
|
(13)
|
These PSUs did not vest and were canceled upon Mr. Graf's termination of employment.
|
|
Stock Awards
|
|||
Name
|
Number of Shares
Acquired on Vesting (#) |
|
Value Realized on Vesting(1)
($) |
|
Roger C. Hochschild
|
65,462
|
|
4,477,601
|
|
John T. Greene
|
n/a
|
|
n/a
|
|
Diane E. Offereins
|
63,716
|
|
4,358,174
|
|
Julie A. Loeger
|
34,022
|
|
2,327,105
|
|
Wanjiku J. Walcott
|
n/a
|
|
n/a
|
|
R. Mark Graf
|
55,940
|
|
3,826,296
|
|
(1)
|
The amount shown represents the closing price of a share of our Common Stock on the scheduled vesting date multiplied by the number of RSUs and PSUs that vested.
|
Name
|
Plan Name
|
Number of Years
of Credited
Service(1)
(#)
|
|
Present Value of
Accumulated
Benefit(2)(3)
($)
|
|
Roger C. Hochschild
|
Discover Financial Services Pension Plan
|
9.1667
|
|
243,477
|
|
John T. Greene(4)
|
Discover Financial Services Pension Plan
|
n/a
|
|
n/a
|
|
Diane E. Offereins
|
Discover Financial Services Pension Plan
|
9.0833
|
|
286,262
|
|
Julie A. Loeger
|
Discover Financial Services Pension Plan
|
16.8333
|
|
451,349
|
|
Wanjiku J. Walcott(4)
|
Discover Financial Services Pension Plan
|
n/a
|
|
n/a
|
|
R. Mark Graf(4)
|
Discover Financial Services Pension Plan
|
n/a
|
|
n/a
|
|
(1)
|
For actuarial valuation purposes, credited service is attributed through the measurement date of December 31, 2008, the date that the Discover Pension Plan was frozen.
|
(2)
|
Service credit and actuarial values are calculated as of December 31, 2019, the plan’s measurement date for the last year.
|
(3)
|
For details on the valuation method and assumptions used in calculating the present value of accumulated benefit, please see Note 11: "Employee Benefit Plans" of our consolidated financial statements in our Annual Report on Form 10-K.
|
(4)
|
Messrs. Green and Graf and Ms. Walcott do not participate in the Discover Pension Plan as they were hired after it was frozen.
|
(1)
|
Reflects increase in value of deferred RSUs due to increase in stock price as compared to December 31, 2018. Excludes cash dividend equivalent payments of $723,682 paid on deferred RSUs for Mr. Hochschild.
|
•
|
A lump sum cash payment equal to 1.5 times the sum of his or her annual base salary plus average cash bonus paid in the prior three years or, if the NEO has been an employee for less than three years, the number of years the NEO has been employed by the Company;
|
•
|
A lump sum cash payment equal to the prorated target cash bonus under the Company’s incentive compensation plans for the year of termination, or if no target was established for the year of termination, the annual cash bonus for the prior year;
|
•
|
Full vesting of all stock-based awards granted to the NEO under the Company’s incentive compensation plans;
|
•
|
Outplacement services for a period of two years at the Company’s expense with a firm selected by the Company;
|
•
|
Certain legal fees if the NEO commences litigation after exhausting the internal administrative claims procedure and, as a result, becomes entitled to receive benefits in an amount greater than those offered by the Company prior to such litigation; and
|
•
|
A lump sum cash payment equal to the difference between COBRA (for medical, dental and vision) and active employee premiums for 24 months.
|
•
|
A lump sum cash payment of 12 months of his or her annual base salary plus target annual cash bonus;
|
•
|
A lump sum cash payment equal to the prorated target annual cash bonus under the Company’s incentive compensation plan for any prior year and the year of termination (to the extent earned and not yet paid);
|
•
|
Outplacement services for a period of one year at the Company’s expense with a firm selected by the Company; and
|
•
|
A lump sum cash payment equal to 12 months of the applicable premium for group health plan coverage in place prior to termination of employment, plus a payment for income taxes on such amount.
|
Executive
Payment Elements
|
Termination in
Connection
with a Change
in Control
($)
|
|
Involuntary
Termination
Without
Cause
($)
|
|
Death
($)
|
Disability
($)
|
Voluntary Termination or Involuntary Termination with Cause
($)
|
Retirement(7)
($)
|
Roger C. Hochschild
|
|
|
|
|
|
|
|
|
Salary and Other Cash Payments
|
6,621,750
|
(1)
|
2,600,125
|
|
78,792
|
0
|
0
|
0
|
Target Annual Incentive Plan Payout(2)
|
1,654,625
|
|
1,654,625
|
|
1,654,625
|
1,654,625
|
0
|
1,654,625
|
Equity Awards(3)
|
23,962,167
|
|
23,962,167
|
|
23,962,167
|
23,962,167
|
0
|
15,480,167
|
Health Coverage(4)
|
29,802
|
|
32,245
|
|
0
|
0
|
0
|
0
|
Other(5)
|
25,000
|
|
12,500
|
|
0
|
0
|
0
|
0
|
Total
|
32,293,344
|
|
28,261,662
|
|
25,695,584
|
25,616,792
|
0
|
17,134,792
|
John T. Greene
|
|
|
|
|
|
|
|
|
Salary and Other Cash Payments
|
5,250,000
|
(1)
|
1,750,000
|
|
58,333
|
0
|
0
|
n/a
|
Target Annual Incentive Plan Payout(2)
|
302,055
|
|
1,050,000
|
|
1,050,000
|
1,050,000
|
0
|
n/a
|
Equity Awards(3)
|
1,006,050
|
|
1,006,050
|
|
1,006,050
|
1,006,050
|
0
|
n/a
|
Health Coverage(4)
|
30,124
|
|
33,963
|
|
0
|
0
|
0
|
n/a
|
Other(5)
|
25,000
|
|
12,500
|
|
0
|
0
|
0
|
n/a
|
Total
|
6,613,229
|
|
3,852,513
|
|
2,114,383
|
2,056,050
|
0
|
0
|
Diane E. Offereins
|
|
|
|
|
|
|
|
|
Salary and Other Cash Payments
|
4,789,250
|
(1)
|
1,575,000
|
|
58,333
|
0
|
0
|
0
|
Target Annual Incentive Plan Payout(2)
|
875,000
|
|
875,000
|
|
875,000
|
875,000
|
0
|
875,000
|
Equity Awards(3)
|
6,886,847
|
|
6,886,847
|
|
6,886,847
|
6,886,847
|
0
|
6,886,847
|
Health Coverage(4)
|
8,974
|
|
10,438
|
|
0
|
0
|
0
|
0
|
Other(5)
|
25,000
|
|
12,500
|
|
0
|
0
|
0
|
0
|
Total
|
12,585,071
|
|
9,359,785
|
|
7,820,180
|
7,761,847
|
0
|
7,761,847
|
Julie A. Loeger
|
|
|
|
|
|
|
|
|
Salary and Other Cash Payments
|
3,029,000
|
(1), (6)
|
1,575,000
|
|
58,333
|
0
|
0
|
0
|
Target Annual Incentive Plan Payout(2)
|
875,000
|
|
875,000
|
|
875,000
|
875,000
|
0
|
875,000
|
Equity Awards(3)
|
6,433,582
|
|
6,433,582
|
|
6,433,582
|
6,433,582
|
0
|
6,433,582
|
Health Coverage(4)
|
31,715
|
|
29,010
|
|
0
|
0
|
0
|
0
|
Other(5)
|
25,000
|
|
12,500
|
|
0
|
0
|
0
|
0
|
Total
|
10,394,297
|
|
8,925,092
|
|
7,366,915
|
7,308,582
|
0
|
7,308,582
|
Wanjiku J. Walcott
|
|
|
|
|
|
|
|
|
Salary and Other Cash Payments
|
3,712,500
|
(1)
|
1,237,500
|
|
45,833
|
0
|
0
|
n/a
|
Target Annual Incentive Plan Payout(2)
|
307,021
|
|
687,500
|
|
687,500
|
687,500
|
0
|
n/a
|
Equity Awards(3)
|
6,696,624
|
|
6,696,624
|
|
6,696,624
|
6,696,624
|
0
|
n/a
|
Health Coverage(4)
|
30,124
|
|
33,963
|
|
0
|
0
|
0
|
n/a
|
Other(5)
|
25,000
|
|
12,500
|
|
0
|
0
|
0
|
n/a
|
Total
|
10,771,269
|
|
8,668,087
|
|
7,429,957
|
7,384,124
|
0
|
0
|
R. Mark Graf
|
|
|
|
|
|
|
|
|
Salary and Other Cash Payments
|
4,534,650
|
(1)
|
1,575,000
|
|
58,333
|
0
|
0
|
n/a
|
Target Annual Incentive Plan Payout(2)
|
875,000
|
|
875,000
|
|
875,000
|
875,000
|
0
|
n/a
|
Equity Awards(3)
|
6,886,847
|
|
6,886,847
|
|
6,886,847
|
6,886,847
|
0
|
n/a
|
Health Coverage(4)
|
30,292
|
|
26,625
|
|
0
|
0
|
0
|
n/a
|
Other(5)
|
25,000
|
|
12,500
|
|
0
|
0
|
0
|
n/a
|
Total
|
12,351,789
|
|
9,375,972
|
|
7,820,180
|
7,761,847
|
0
|
n/a
|
(1)
|
Includes change in control severance plus consideration for entering into a non-competition agreement. For Mr. Greene and Ms. Walcott who were hired during 2019, target STI is used to estimate the severance amount.
|
(2)
|
Includes one-time pro-rata bonus at target. Since termination is as of December 31, 2019, the value is equal to the target disclosed in the Estimated Future Payouts Under Non-Equity Incentive Plan Awards column under "Grants of Plan-Based Awards for 2019".
|
(3)
|
Represents the intrinsic value of the accelerated RSUs, PSUs, and accrued PSU dividends, all as of December 31, 2019. For the PSUs, in the event of a qualified termination following a change in control of the Company during the first year of the performance period, the award will convert to cash at target performance and be paid out according to the vesting schedule, or sooner in the event of a qualified termination following the change in control event. In the event of a change in control of the Company during the second or third year of the performance period, performance will be measured
|
(4)
|
For termination in connection with a change in control, a lump sum payment equal to the difference between COBRA (for medical, dental and vision) and active employee health and welfare premiums for 24 months. For involuntary termination without cause, a lump sum payment equal to 12 months of COBRA premiums (for medical, dental and vision) plus a payment for income taxes on such amount.
|
(5)
|
Includes value of expected outplacement benefits for a 24-month period for termination in connection with a change in control and for a 12-month period for involuntary termination without cause.
|
(6)
|
Severance upon a CIC consists of 3.0x multiple of the sum of 12/31/2019 base salary and participant's average actual bonus in the three years preceding the change in control year. The table reflects the cash severance after "best net" cutback. Ms. Loeger cash severance before cutback equals $4,298,600.
|
(7)
|
Mr. Hochschild, Ms. Offereins, and Ms. Loeger are eligible for retirement. For purposes of illustration, includes a proration of outstanding equity awards as well as the bonus at target equal to the value disclosed in the Estimated Future Payouts Under Non-Equity Incentive Plan Awards column under “Grants of Plan-Based Awards for 2019,” but excludes the pension benefits described under “2019 Pension Benefits."
|
(1)
|
We excluded employees from the following countries: four from Canada, 180 from China, four from France, two from Germany, five from India, one from Japan, eight from Singapore, one from Sweden, one from Switzerland, one from Turkey, one from the United Arab Emirates, and 150 from the United Kingdom.
|
|
|
|
PROPOSAL 3
Ratification of Appointment of Independent Registered Public Accounting Firm
The Board of Directors recommends a vote “FOR” the ratification of Deloitte & Touche LLP’s appointment as our independent registered public accounting firm for the 2020 year. Proxies solicited by the Board will be voted “FOR” this ratification unless otherwise instructed.
The Audit Committee has the sole authority and responsibility to appoint, compensate, retain, oversee, evaluate and, when appropriate, replace the independent public accounting firm. Each year the Audit Committee evaluates the qualifications and performance of the independent public accounting firm and considers, as appropriate, the rotation of the independent audit firm. Based on this evaluation, the Board of Directors and the Audit Committee recommend that you approve the ratification of the appointment of Deloitte & Touche LLP (“Deloitte”) to serve as our independent registered public accounting firm for the 2020 year. The Board of Directors and the Audit Committee believe the continued retention of Deloitte is in the best interest of the Company and its shareholders. Deloitte has served as the independent registered public accounting firm for the Company since 2007 and its former parent company, Morgan Stanley, prior to that time. Consistent with the regulations adopted pursuant to the Sarbanes-Oxley Act of 2002 and the Audit Committee’s Charter, the lead audit partner having primary responsibility for the audit and the concurring audit partner are rotated every five years. In connection with this mandated rotation, the Audit Committee and its chair are directly involved in the selection of any new lead audit partner. The current lead Deloitte audit partner was designated commencing with the 2017 audit. A representative of Deloitte will be present at the Annual Meeting, will have the opportunity to make a statement, if desired, and will be available to respond to appropriate questions.
|
|
(1)
|
Audit Fees services include: (i) the audit of our consolidated financial statements included in our Annual Report on Form 10-K and services attendant to, or required by, statute or regulation; (ii) accounting consultation attendant to the audit; (iii) reviews of the interim condensed consolidated financial statements included in our Quarterly Reports on Form 10-Q; (iv) consents and other services related to SEC and other regulatory filings; and (v) statutory or financial audits of subsidiaries.
|
(2)
|
Audit-Related Fees services include: (i) data verification and agreed-upon procedures related to asset securitizations; (ii) assessment and testing of internal controls and risk management processes beyond the level required as part of the audit pursuant to Statement on Standards for Attestation Engagements No. 18; and (iii) agreed-upon procedures related to XBRL tagging of our consolidated financial statements included in our Annual Report on Form 10-K and our interim condensed consolidated financial statements included in our Quarterly Reports on Form 10-Q.
|
(3)
|
All Other Fees include fees for Deloitte’s accounting research tool.
|
5% Beneficial Owners
|
Shares of Discover
Common Stock
Beneficially
Owned(1)
|
Percentage
of Discover
Common Stock
Outstanding
|
|
BlackRock, Inc., 55 East 52nd Street, New York, New York 10055(2)
|
21,347,377
|
6.97
|
%
|
Capital World Investors, 333 South Hope Street, Los Angeles, CA 90071(3)
|
23,708,462
|
7.74
|
%
|
The Vanguard Group, 100 Vanguard Boulevard, Malvern, Pennsylvania 19355(4)
|
24,741,412
|
8.08
|
%
|
Executive Officers and Directors
|
|
|
|
Roger C. Hochschild(5)
|
780,538
|
*
|
|
John T. Greene
|
4,443
|
*
|
|
Diane E. Offereins(6)
|
132,952
|
*
|
|
Julie A. Loeger(7)
|
62,501
|
*
|
|
Wanji J. Walcott
|
3,400
|
*
|
|
Jeffrey S. Aronin(8)
|
68,115
|
*
|
|
Mary K. Bush(9)
|
53,995
|
*
|
|
Gregory C. Case(10)
|
68,115
|
*
|
|
Candace H. Duncan(11)
|
13,099
|
*
|
|
Joseph F. Eazor(12)
|
9,442
|
*
|
|
Cynthia A. Glassman(12)
|
45,781
|
*
|
|
Thomas G. Maheras(13)
|
53,040
|
*
|
|
Michael H. Moskow(14)
|
49,962
|
*
|
|
Mark A. Thierer(15)
|
16,040
|
*
|
|
Lawrence A. Weinbach(16)
|
52,927
|
*
|
|
Jennifer L. Wong(17)
|
1,531
|
*
|
|
Directors and executive officers as a group (23 persons)(18)
|
1,691,432
|
*
|
|
*
|
Represents beneficial ownership of less than 1%.
|
(1)
|
Does not include shares underlying unvested RSUs unless otherwise noted.
|
(2)
|
Based on a Schedule 13G/A filed on February 5, 2020 by BlackRock, Inc. regarding shares of our Common Stock deemed to be beneficially owned, directly or through its subsidiaries, as of December 31, 2019. The Schedule 13G/A discloses that BlackRock, Inc. had sole voting power as to 18,320,033 shares, and sole dispositive power as to 21,347,377 shares. The ownership percentage is based on the assumption that BlackRock, Inc. continued to own the number of shares reflected in the table on March 16, 2020.
|
(3)
|
Based on a Schedule 13G/A filed on February 14, 2020 by Capital World Investors regarding shares of our Common Stock deemed to be beneficially owned, directly or through its subsidiaries, as of December 31, 2019. The Schedule 13G/A discloses that Capital World Investors had sole voting power as to 23,706,103 shares, and sole dispositive power as to 23,708,462 shares. The ownership percentage is based on the assumption that Capital World Investors continued to own the number of shares reflected in the table on March 16, 2020.
|
(4)
|
Based on a Schedule 13G/A filed on February 12, 2020 by The Vanguard Group regarding shares of our Common Stock deemed to be beneficially owned, directly or through its subsidiaries, as of December 31, 2019. The Schedule 13G/A discloses that The Vanguard Group had sole voting power as to 474,343 shares, shared voting power as to 96,138 shares, sole dispositive power as to 24,198,076 shares, and shared dispositive power as to 543,336 shares. The ownership percentage is based on the assumption that The Vanguard Group continued to own the number of shares reflected in the table on March 16, 2020.
|
(5)
|
Includes 430,763 shares underlying vested RSUs that would convert following a termination of service, and 25,390 shares underlying RSUs that would vest and convert following a termination of service.
|
(6)
|
Includes 15,761 shares underlying RSUs that would vest and convert following a termination of service.
|
(7)
|
Includes 15,198 shares underlying RSUs that would vest and convert following a termination of service.
|
(8)
|
Includes 57,307 shares underlying vested RSUs that would convert following a termination of service, and 1,920 shares underlying RSUs that are scheduled to vest within 60-days of March 16, 2020.
|
(9)
|
Includes 52,075 shares underlying vested RSUs that would convert following a termination of service, and 1,920 shares underlying RSUs that are scheduled to vest within 60-days of March 16, 2020.
|
(10)
|
Includes 66,195 shares underlying vested RSUs that would convert following a termination of service, and 1,920 shares underlying RSUs that are scheduled to vest within 60-days of March 16, 2020.
|
(11)
|
Includes 11,179 shares underlying vested RSUs that would convert following a termination of service, and 1,920 shares underlying RSUs that are scheduled to vest within 60-days of March 16, 2020.
|
(12)
|
Includes 1,920 shares underlying RSUs that are scheduled to vest within 60-days of March 16, 2020.
|
(13)
|
Includes 42,947 shares underlying vested RSUs that would convert following a termination of service, and 1,920 shares underlying RSUs that are scheduled to vest within 60-days of March 16, 2020.
|
(14)
|
Includes 44,990 shares underlying vested RSUs that would convert following a termination of service, and 1,920 shares underlying RSUs that are scheduled to vest within 60-days of March 16, 2020.
|
(15)
|
Includes 14,120 shares underlying vested RSUs that would convert following a termination of service, and 1,920 shares underlying RSUs that are scheduled to vest within 60-days of March 16, 2020.
|
(16)
|
Includes 51,007 shares underlying vested RSUs that would convert following a termination of service, and 1,920 shares underlying RSUs that are scheduled to vest within 60-days of March 16, 2020.
|
(17)
|
Includes 1,531 shares underlying RSUs that are scheduled to vest within 60-days of March 16, 2020.
|
(18)
|
Includes 770,583 shares underlying vested RSUs that would convert following a termination of service, 83,747 shares underlying RSUs that would vest and convert following a termination of service, and 20,731 shares underlying RSUs that are scheduled to vest and convert within 60-days of March 16, 2020. The aforementioned amounts as well as the total amount of 1,691,432 shares are reflective of shares beneficially owned by our Executive Officers and Directors as of March 16, 2020. On March 23, 2020 Amir S. Arooni was appointed as Executive Vice President and Chief Information Officer replacing Glenn P. Schneider. Mr. Arooni does not currently own any shares of Discover common stock and does not have any shares underlying RSUs that are scheduled to vest and convert within 60-days of March 16, 2020.
|
•
|
the commercial reasonableness of the terms of the proposed transaction;
|
•
|
the benefit to the Company;
|
•
|
the availability and/or opportunity costs of alternate transactions;
|
•
|
the materiality and character of the related person’s direct or indirect interest;
|
•
|
whether the transaction would, or would be perceived to, present an improper conflict of interest for the related person, taking into account: (i) the business of the Company; (ii) the size of the transaction; (iii) the overall financial position of the related person; (iv) the direct or indirect nature of the related person’s interest in the transaction; (v) whether the transaction is of an ongoing nature; and (vi) any other relevant factors; and
|
•
|
if the related person is a director (or an immediate family member of a director), the impact on the director’s independence.
|
(in millions)
|
2019
($)
|
|
2018
($)
|
|
% Change
|
|
Net income-GAAP
|
2,957
|
|
2,742
|
|
7.84
|
%
|
Allowance for loan losses
|
345
|
|
423
|
|
|
|
Income tax expenses
|
878
|
|
855
|
|
|
|
Profit before taxes and reserves-Non-GAAP
|
4,180
|
|
4,020
|
|
3.98
|
%
|
|
|
|
|
|
|
|
Proposal
|
Our Board’s
Recommendation |
|
|
|
1
|
Election of Directors
|
“FOR” the election of each director nominee
|
|
|
2
|
Advisory Vote to Approve Named Executive Officer Compensation
|
“FOR”
|
|
|
3
|
Ratification of Appointment of Independent Registered Public Accounting Firm
|
“FOR”
|